New Orleans Early this week H&R Block finally threw in the towel and announced that they would totally discontinue RALs for this coming tax season on 2011 returns. After seven (7) years we can finally count coup on a total victory that once preyed on lower income and desperate families for close to half-a-billion dollars in unnecessary and predatory fees and charges. How did it happen?
ACORN launched an extensive campaign in 2004 which culminated in one set of negotiations after another with not only H&R Block, but also their competitors, Jackson & Hewitt and Liberty Tax Services, and their primary banker, HSBC, ACORN hammered on all of them for the end of Refund Anticipation Loans or RALs as they were called in the industry. Much of this story is detailed in my first book, Citizen Wealth: Winning the Campaign to Save Working Families. The first concessions involved disclosures, finally showing families that the effective rates of these “loans” were often as high as 235%! We managed to eliminate some charges immediately. By 2005 all three of the companies were under 3-year agreements on “best practices” including sharp reductions in RALs. An additional breakthrough occurred in 2006-7 when HSBC, the prime financier of RALs agreed to exit the business, and notified preparers they would be terminating the contracts when complete. Negotiations for a precedent setting, game changing program between H&R Block and ACORN for the 2nd agreement commencing in 2008 evaporated with ownership and management changes, which kept a heart beat alive for RALs in H&R Block as they tried to replace bankers in recent years on the program.
The many contentious meetings we had with the IRS and our “relationship managers” on the IRS/ACORN partnership may have borne some fruit and have helped finally put the last stake in the heart on RALs, since the IRS was the primary “enabler” for the companies in this predatory scheme. The IRS would advise the companies whether or not the e-filed return was likely to be paid in full, which essentially made the return and the RAL on which it was based, credit worthy enough for big banks like HSBC, Chase, and others to factor the funds. Earlier this year the Office of the Controller of the Currency ordered HSBC to terminate the last of its funding for RALs after the IRS in late 2009 indicated that it would no longer provide the code the preparers needed to determine whether the refund would be made in full.
I also have to believe part of this is fruit, flower, and perhaps payback revenge as a farewell present from Mark Ernst, the Deputy Commissioner of the IRS before he left the government in late October 2010. Ernst had been ousted as CEO of H&R Block due to losses in the subprime subsidiary, Option One, and the company coup and attack, which killed our deal. Ernst had always assured us, including me personally, that RALs were a “temporary” business and one he wanted to abandon. Once inside the IRS he was in a position to do some of the right things, speed up the return times for taxpayers obviating the need for RALs, and take the IRS out of an enable position.
Ding dong, this is one witch finally dead!
I note with some appreciation and no small amount of irony that Ernst has now ended up as Chief Operating Officer for Fiserv, a company based in Milwaukee which provides e-commerce systems for the financial services industry. In a sweet bit of irony he is now working under Jeffrey Kabuki, the CEO of Fiserv. Kabuki as the EVP at H&R Block led the negotiation team for the company in the ACORN/H&R Block negotiations while working for Ernst there. Good luck, guys! Here’s tipping one of Milwaukee’s finest to you, fellas, tonight!
RALs are dead, so one scourge for low income families and their citizen wealth has finally been put to rest, and as it turns out what goes around comes around!