H&R Block loses Refund Anticipation Loans

America's biggest tax preparation firm will no longer offer refund anticipation loans (RALs) to their clients forcing millions of customers elsewhere or having to wait longer to receive their federal income tax refund.

H&R Block's banking partner, HSBC, was told to quit underwriting these controversial loans by the Office of the Comptroller of the Currency.

RALs are short-term loans backed by the taxpayer’s expected refund. Typically low-income customers who file their taxes early in the season apply for the loans. RALs have been controversial for several years due to their huge bank fees, financing fees and sometimes triple-digit interest rates.

Bank lenders have been exiting the RAL business in recent years due to the credit crisis and a change by the Internal Revenue Service eliminating a code that lets tax preparers know if customers will receive their entire refund or if the dollars will be used to pay down back taxes or unpaid child support.

Taxpayers who elect not to apply for RALs can still receive their full refund directly from the IRS via direct deposit in as little as eight days.

The announcement is another blow to Block's reputation which in the last couple of years has seen:

• H&R Block overstated their own earnings in 2003 & 2004 by $91 million
• Sued by New York state for deceptive marketing of its Express IRA retirement accounts
• Mailing free copies of its software to its customers … with their social security number on the package
• Two preparers filing fraudulent tax returns and stealing more than $100,000 from its clients

H&R Block will still offer refund anticipation checks (RAC) which is the taxpayer's actual disbursed refund which is loaded onto a payment card after the IRS processes the taxpayer's return.