H&R Block has made the decision not to offer refund anticipation loans next year, a result of the RAL business getting a lot harder for tax prep chains to operate in lately.

The company said Tuesday that it would continue to provide low-cost financial solutions next year, but apparently RALs won’t be one of them.

“We evaluated our options to determine what was best for our clients, the business and our shareholders,” H&R Block president and CEO Bill Cobb said in a statement. “Knowing we had a strong 2011 tax season without RALs, our analysis did not present a compelling reason to bring back the product in 2012.”

Block noted that the IRS’s recent modernization efforts, which have sped up refunds to two weeks or less in some cases, forced the change. The Kansas City, Mo.-based tax prep giant is going to continue to offer refund anticipation checks instead of loans, however. The money from the checks can be deposited on the company’s Emerald Cards, which can be used at many ATMs.

Another likely reason for the decision to discontinue RALs is that the Internal Revenue Service’s elimination of the debt indicator prior to last tax season has made it much riskier for tax prep providers like Block to offer refund anticipation loans. The debt indicator would tell them whether a customer owed outstanding debts for child support, delinquent student loan payments, taxes and the like. Without the debt indicator, tax prep chains can’t be sure that the government will refund the tax money to the client in the end.

Block competitors like Jackson Hewitt have also seen problems with their RAL business. The exit from the RAL business of Santa Barbara Bank & Trust, or SBBT, after its parent company came under pressure from banking regulators left Jackson Hewitt with an underfunded RAL program last year (see Jackson Hewitt RAL Program Remains Underfunded). Jackson Hewitt needed to scramble to reach a deal with its other RAL provider, Republic Bank, to increase the percentage of loans and tide over the tax prep chain through last year’s tax season. Still, Jackson Hewitt's tax business took a heavy hit, and it filed for Chapter 11 earlier this year.

Block’s own RAL provider, HSBC, was ordered last December by the Office of the Comptroller of the Currency to stop providing refund anticipation loans and checks to the tax prep chain (see Government Orders HSBC to Halt RALs for H&R Block). HSBC had wanted to exit the RAL business anyway, and Block filed suit last October when HSBC tried to end the arrangement. Still, Block faced extra hurdles last tax season in making up for the loss, along with other problems, and both its chairman and CEO stepped down earlier this year.

Cobb’s decision to eliminate the loans at Block, which have long been heavily criticized by consumer advocates for their high interest rates, was probably a smart one. The RAL business used to be a highly profitable one for many tax prep chains. Now it has mostly turned into a headache.

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