Axos banking partnership with H&R Block in jeopardy

H&R Block plans to terminate a six-year-old partnership with Axos Financial in San Diego.

The $12.2 billion-asset Axos disclosed in a regulatory filing Thursday that H&R Block is preparing a formal termination letter to end the relationship on or around July 1. The partnership addresses fees for three products tied to the H&R Emerald Card.

Axos said it would lose about $21 million in in administrative fees in 2021 if H&R Block ended the partnership and no transition payments are made to the bank.

The company also warned that H&R Block could pick another bank to handle its Refund Advance product, an arrangement that is renewed annually outside the Emerald partnership. That could cost Axos $10 million in net operating income in 2021.

“The actual outcome and the impact on our operating results may vary … given the uncertainty of the terms and the execution of new agreements that H&R Block intends to seek,” the filing said.

Axos warned in March that the Emerald relationship was in jeopardy once it crossed $10 billion in assets, triggering a cap on interchange fees. H&R Block was allowed to end the partnership if the parties were unable to strike a deal to compensate the tax preparation company for the lower fees.

Axos and H&R Block formed their partnership in 2014 when the bank agreed to buy certain assets and all the deposits of H&R Block Bank. Under the deal, Axos agreed to provide H&R Block-branded financial products through the tax preparation firm's retail and digital channels.