H&R Block, Under Pressure, Kills Tax Refund Loans

H&R Block, Inc. is trying to make lemonade out of bank regulators' lemons.

The Kansas City, Mo. tax-preparation company, which also owns a bank, said this week that it would not offer refund anticipation loans during the upcoming 2012 tax season.

H&R Block said it did not find "a compelling reason to bring back the product in 2012" — but the decision was out of its hands. Federal banking regulators last year effectively killed H&R Block's tax refund loan business when they blocked HSBC Holdings PLC from funding refund advances on behalf of the tax-preparer.

Now H&R Block is pinning its hopes on other alternative financial products for its lower-income and underbanked customers. It said on Tuesday that it would continue to sell a tax-time product known as refund-anticipation checks, which it can process through its own bank, and that it could distribute those checks to customers via its popular prepaid cards.

The card is "an especially useful product for unbanked taxpayers looking for a low-cost way to establish a year-round banking relationship," H&R Block said in the release.

Companies including H&R Block and competitors Jackson Hewitt Tax Service Inc. and Liberty Tax Service made a nice profit from refund anticipation loans, which typically collected high fees from the low-income customers who bought them. Consumer advocates have long called the loans predatory.

Refund anticipation loans have been waning in popularity over the last few years due in part to the regulatory crackdown on the tax-preparers' bank partners. The Internal Revenue Service has also improved its technology, meaning that it can process taxpayers' returns more quickly. That faster turnaround reduces the need for many consumers to take out a bridge loan between when they pay a company for preparing their tax returns and when they receive their refunds.

This year Republic Bancorp Inc. of Louisville, Ky., was the largest remaining provider of refund anticipation loans, through its partnerships with Jackson Hewitt and Liberty. On Tuesday, H&R Block couldn't resist sniffing at the injustice of it all:

In 2011, "some smaller tax preparation firms were still able to offer RALs due to different regulations imposed on their lending banks. H&R Block strongly believes this regulation should be consistent across the tax preparation industry," it said in the release.