Encouraged by H&R Block Inc.'s decision to stop offering controversial loans linked to tax refunds, consumer groups have urged other tax preparation companies to "just say no" to offering the high-cost, short-term loans.
The calls are part of a heated policy debate over refund anticipation loans. While the loans enable taxpayers to forgo waiting for their tax refund check in the mail by providing consumers cash on the spot, the loans come with steep fees and high interest rates.
Consumer advocates say that the loans should be eliminated, arguing that they unfairly target low-income consumers, dragging them into a dangerous cycle of debt.
Last year, the Internal Revenue Service said it would stop offering a crucial debt indicator tool banks used to underwrite the loans. The policy shift was applauded by critics of tax refund loans because it was viewed as a way to make it harder for companies to offer the instant cash.
However, companies that make or provide the loans say that the loans are not only legal but also popular among cash-strapped consumers who could benefit from an instant infusion of cash.
Meanwhile, consumer advocates continue to put pressure on Jackson Hewitt Tax Service Inc. and Liberty Tax Service, thought to be the two remaining companies that offer tax refund loans.
H&R Block, the nation's largest preparer of tax returns, ended its long-term contract for refund anticipation loans last year after its bank partner, HSBC Holdings PLC, was ordered by its federal regulator to stop making the loans. Consumer advocates say that H&R Block had a good tax season this year even without offering the loans.
On Wednesday, the National Consumer Law Center along with the Consumer Federation of America and Community Reinvestment Association of North Carolina made a fresh plea for Jackson Hewitt and Liberty Tax Service to stop offering the loans.
"H&R Block did the right thing," Chi Chi Wu, a staff attorney at the National Consumer Law Center, said in a press release. "We have criticized these loans as high cost and risky for over a decade, and we are pleased that Block has actively decided not to offer them."
Jackson Hewitt in August said it plans to continue offering tax refund loans. Liberty Tax Service also still offers the refund anticipation loans, according to its website.
