H&R Block shares fell Monday after it received notice from HSBC that the bank is immediately terminating refund anticipation loans and refund anticipation checks for Block as a result of a regulatory directive from the Office of the Comptroller of the Currency.
Alan Bennett
The two parties had signed a long-term contract under which HSBC would provide all of H&R Block’s refund anticipation loans and some of its refund anticipation checks. As a result of the order from banking regulators, HSBC told the tax prep giant Friday that it would no longer provide RALs or RACs to H&R Block clients. At the same time, HSBC’s exclusive right to provide such products has also ended, thereby enabling H&R Block to enter into other partnerships for financial products that were previously precluded.
The contract termination is the result of a directive from the OCC, HSBC’s banking supervisory agency, immediately prohibiting HSBC from offering any form of RALs. Shares of H&R Block were down about 8 percent in mid-morning trading on Monday.
Advertisement
H&R Block said it would continue to offer all its customers its traditional RACs that do not require any out-of-pocket costs by taxpayers at the time the tax return is filed. In addition, the company provides direct deposit accounts through its Emerald Card program that allow customers to avoid the delay and cost of paper checks and check-cashing charges through electronic transfers of tax refund proceeds.
H&R Block also provides various other programs to its tax preparation clients, such as its Emerald Advance revolving line of credit product that has been used by more than 4 million customers.
“As a result of the OCC’s decision, millions of taxpayers will be deprived of credit, or they will be forced to use higher-priced alternatives, without the slightest benefit to the solvency of HSBC or the banking system in general,” said H&R Block president and CEO Alan Bennett in a statement. “While we are very disappointed by this decision, we have been preparing for the loss of RALs, so we have several other financial products available and under development for this tax season. We are working around the clock to give our company and franchise teams the best tools we can to fill the void for our clients created by the OCC’s action. The OCC’s 11th hour timing will make it difficult for us to put alternative products in place at all of our locations in time for the early part of the 2011 tax season, but we will spare no effort to do so. Our clients, our tax preparers and our franchisees deserve nothing less.”
Block had filed suit against HSBC in October when the bank tried to end their arrangement, saying it could not provide funding for the RALs and RACs because the IRS had decided to stop providing a debt indicator next tax season that would say whether a taxpayer has liens outstanding, and that would make the loans too risky to provide (see H&R Block Sues HSBC over RALs). HSBC has been in the process of withdrawing from the RAL business since 2007 and Block is its only remaining customer. The two sides later entered discussions to settle the lawsuit (see Block in Talks with RAL Provider HSBC).
Prior to the OCC’s recent action, H&R Block and HSBC had reached agreement on a proposal that would have allowed HSBC to honor its contractual obligations to H&R Block during tax season 2011. Under the revised terms agreed upon by both parties, H&R Block would have in effect covered essentially all credit defaults experienced by HSBC, thereby making H&R Block’s credit rather than the taxpayer’s refund the ultimate source of repayment to HSBC. The proposed new terms would have made it nearly impossible for HSBC to suffer any financial losses, according to Block.
In addition, H&R Block agreed at its own expense to fund “Instant RALs” at a substantially reduced rate to consumers. The total cost to the consumer of a $1,500 Instant RAL under the proposed terms rejected by the OCC would have been $46, which is approximately 62 percent less expensive for consumers than the products being offered this year by competitors through a few banks that are regulated by the Federal Deposit Insurance Corporation that will apparently continue despite the OCC directive to HSBC.
10 Comments
I have used RAL service from H&R Block for the past 3 years and I am saddened to think that here comes the feds to stick their noses into anything that involves money. Let's see the IRS takes my money from every check, I have to file my taxes by April 15th every year, but now that they owe me money it's once again up to them to tell me how I can get it? So if it's my money why does it matter to anyone if I pay $200 or $300 to get my $5000 today instead of waiting 2 or 3 weeks? It's just another way for the federal government to control Americans. Hey Obama keep your hands out of my pockets as I can stimulate myself!
One Big Ass Mistake America
The true meaning of Obama!
Posted by: Bammbamm | January 10, 2011 3:03 PM
Report this Comment
Actually taxmaven, the tax preparation companies dont make any more money on the RAC, RAL, and IRAL, the lender is the one that sets the interest rates(which I agree are a ripoff) and collect on the loans. Republic Bank who is regulated under the FDIC not the OCC is still providing a RAL for Liberty and Jackson Hewitt. H&R Block on the otherhand delt with HSBC who as we all read above is regulated by the OCC, which eliminated the RAL for H&R Block who ironically pioneered the loan product back when E-File was developed by the IRS. Also just to let everyone know that H&R Block has developed a INSTANT loan product that is less expensive than every tax prep company that has a RAL product with Republic Bank, so H&R Block will be very competative this year like always. The only thing I would like to know is how does two branches of the government that govern that same thing (financial institutions) could come up with two totally differant decisions?
Posted by: taxguy87 | January 4, 2011 8:59 PM
Report this Comment
RALS are ripoffs and always have been. How do you think Liberty, H&R Block and Jackson Hewitt make money? Why is it that tax prep franchises just pop up oall over the place? I worked at one of the these tax prep places and has anyone ever compared the cost of a person who qualifies for an EIC and may get a RAL)versus someone who who just makes a little more and does not qualify for EIC? The fees that these ripoff companies make for tax preparation are sometimes two or three times more. The government needs to step in and minimize the cost of EIC return not just regulate RALs.
Posted by: the taxmaven | December 31, 2010 11:54 AM
Report this Comment
Circular 230 rules forbid a preparer from cashing a refund check. If H&R Block is going to fund its instant RALs, they have an interest in the refund as security. Sounds like the same conflict that the Circular 230 prevents.
Posted by: richdibo | December 29, 2010 5:04 AM
Report this Comment
EVEN THOUGH I HAVE USED RALS UNTIL LAST YEAR, I THOUGHT ALL ALONG THEY WERE A TAKE ADVANTAGE OF THE CUSTOMER. I ONLY USED THE RAS LAST YEAR AND MOST OF MY CLIENTS SWITCHED OVER AND SAVED THEMSELVES ABOUT $100. GOOD GOING IRS, STOP IT FOR ALL RALS. P COX
Posted by: professioonal tax | December 28, 2010 11:13 AM
Report this Comment
To be quite frank, I hate the refund anticipation loan process. Thank God the IRS has decided to at least deter some of the practice by removing the debt indicator. Sometimes you have to save people from themselves. I would rather see someone have to pay a $10 check fee at a bank than to pay 50 - 500% effective interest on a ESL. I've been in the accounting business for 10 years and I have yet to offer RAL. I've recently decided, reluctantly, to offer the service to have my fees taken out of my client's refund. Yes, they pay a processing fee, but at least I'm not getting stiffed. It helps me manage my cash flow during tax season. I'm glad that the banks are pulling out, it's almost fraudulent what they are doing to consumers.
Posted by: acbrowncpa | December 28, 2010 10:20 AM
Report this Comment
These RAL's were a ripoff of lower income people anyway - they would be much better served by receiving higher paychecks rather than higher refunds.
Besides, H & R Blockheads are some of the most ill-prepared tax preparers out there - I have saved many clients money doing amended returns after they first went there (and they come back to me afterwards, not them)
Posted by: StlH2O | December 28, 2010 10:10 AM
Report this Comment
All that has happened here is the federal government will deprive taxpayer(s) and I use the word loosely, since most RALS serve pepole who can't even open a bank account. However, many of these so called taxpayers sit in the lobby at a tax preparers office (no names), swap kids, work out deals and for thew most part game the system. I have seen this, personally, I will not serve this segmant of our business. It has amazed me that the government is so inept to let this practice continue. I can turn folks away all day long, they just go down the street. I say good bye to the RALS and hope this prevents the abuses of the past.
Posted by: mikedurlak | December 28, 2010 8:51 AM
Report this Comment
Not sure about Liberty, but Jackson Hewitt said Friday that it had struck an amended agreement with its RAL partner Republic Bank & Trust that would fund 80 percent of its rapid refund business.
Posted by: MikeCohn | December 27, 2010 2:07 PM
Report this Comment
What about liberty and Jackson Hewitt?
Posted by: Len@ace | December 27, 2010 1:51 PM
Report this Comment
Add Your Comments...
Already Registered?
If you have already registered to Accounting Today, please use the form below to login. When completed you will immeditely be directed to post a comment.
Not Registered?
You must be registered to post a comment.