H&R Block loses refund-loan partner

NEW YORK - Millions of H&R Block Inc. customers who relied on short-term loans backed by their expected tax refunds will not have that option this year, because Block's banking partner was forced by federal regulators to stop offering the loans.

It's a blow to Block, which could lose tax customers to competitors still offering the loans, as it has little time to find a new funding partner before tax season starts.

Block could lose millions of dollars in revenue, because nearly 45 percent of its customers use a refund-anticipation loan or refund-anticipation checks. The tax preparer made about $146 million on the two products in 2010.

The short-term loan is backed by an expected federal income-tax refund. A refund-anticipation check is an account in which a refund is deposited and taxpayers have their tax-preparation fees deducted from their refund, rather than paying up front. Both products are typically used by low-income customers.

Block's contract with HSBC Bank to back the loans dates to 2005, but regulators ordered HSBC to stop funding the high-interest loans, typically offered to clients with spotty or no credit histories.

The federal Office of Comptroller of the Currency wouldn't comment on the change. But it's likely a change in policy by the Internal Revenue Service contributed to the OCC's decision. The IRS eliminated a code that let tax preparers know if customers will get their entire refund, or if some will be held to cover things such as unpaid back taxes. Tax-prep companies used the code as a form of credit check.

by Associated Press December 28, 2010




H&R Block loses refund-loan partner