H&R Block Inc., best known for its tax preparation services, is expanding into banking.The company, based here, announced at its annual meeting in mid-September that it will begin offering bank accounts to customers to facilitate direct deposit of tax refunds.

"We think the things we are doing will solve a whole host of the problems our clients face," said H&R Block chairman and chief executive Mark A. Ernst.

H&R Block estimates 3 million of its clients don't have bank accounts, forcing them to pay high fees for check-cashing services, and to make do without formal savings accounts.

Ernst said that the company hoped to open at least 1 million bank accounts in next year's tax season. He said that the changes are possible in part because H&R Block obtained its own thrift charter and opened a savings bank in May.

That will make the new accounts eligible for coverage by the Federal Deposit Insurance Corp., which insures traditional checking and savings accounts for up to $100,000.

Ernst said that both the rates and fees that the tax return preparer charges customers for its refund anticipation loans will be dramatically reduced by the time the 2007 tax season arrives.

Speaking at the company's annual meeting, Ernst said that the reduction means the typical RAL rate will be cut by more than 60 percent. The loans are the short-term cash advances made to customers who expect refunds after Block prepares their tax return. The practice has been the target of a number of lawsuits this year - including suits filed by California Attorney General Bill Lockyer and New York Attorney General Eliot Spitzer - that accused Block of charging excessive fees to a financially unsavvy customer base.

Under the new fee schedule, a typical $2,800 refund loan might cost as little as $60, so long as customers open H&R Block bank accounts and arrange for refunds to be deposited directly into them. H&R Block said that this equates to a 36 percent annual interest rate, in line with what consumer advocates suggest. It said that this is below the 93 percent effective rate that it might have charged before, and the 103 percent that its rivals might charge.

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