H&R Block, HSBC, & the end of RALs

57334671TB002_Last_Minute_TNew Orleans Refund Anticipation Loans or RALs are a product that have preyed on lower income worker families since their inception and promotion by the big tax preparers, H&R Block, Jackson-Hewitt, and Liberty, as well as smaller fry who could get access to credit.  Negotiating with these companies could get depressing when I worked with the teams of ACORN members who the ACORN Financial Justice Center when better disclosure meant looking at a rate package that would be between 220 and 250% annualized.  There was never anything good about the products no matter what they were called, but their heartbeat was the desperate need of many families to have the money the few days quicker than it could be obtained from the IRS on an electronic or mail filing.

In a significant concession HSBC, the main lender to the large preparers, announced that it was departing the business in what they described to me, and I reported in Citizen Wealth, as “reputational” concerns.  Despite the fact that they were making almost $200M per year from this business, there was no way to disguise its predatory nature.  JP Morgan-Chase was another big player in a session where they were conceding that they would lower rates, asked me sarcastically if we thought it would be “better if they got out of the business,” to which we answered “yes!”  Santa Barbara Trust was the last major lender still hanging in the business.  HSBC has assured us that they were on a step down, transitional contract, which would pull them completely out of the business with H&R Block by the end of 2009 while they dropped other companies immediately.

Given that background, I was both disappointed and delighted to read the news from H&R Block that they were scrambling to replace HSBC as their lender and credit source for RALs for the 2011 tax season.  This should not have been a surprise to them, but it was a surprise to me to see that HSBC had continued to stand behind the RALs in 2011, long after they had assured me that they would be out of the business completely.  Clearly in the last 2 ½ years since I left ACORN the organization had taken its eye off of the target and the consequences had not been good for lower income working families who are dependent on professional preparers.  That is disappointing.

Delightful was seeing that the IRS finally did the right thing after having been an enabler to this thievery for so many years and eliminated a code this last summer that allowed tax preparers to know whether or not the likelihood was good that the filer would receive their entire refund sufficiently to cover the charges and fees being larded on by the preparers.  The IRS was effectively doing a low grade “credit check” for the preparers.  Disgusting!  Once they did that the Office of the Controller of the Currency (OCC), one of the many federal bank regulators, issued a determination barring HSBC and the like from such lending by classifying it now as too risky, despite a last minute contract extension that Block (after filing suit against HSBC for reneging on the contract) had negotiated with HSBC for the 2011 season where Block would cover all HSBC losses.  Finally the federales did the right thing!

Though this may be the death knell for RALs, which are a loan with interest, against the sums, some of the other predatory schemes will still survive.  Block announced that it would continue to fund refund anticipation checks, which are more like advances, through its own bank, the H&R Block Bank.

These predatory operations have been crack cocaine for the big-time preparers for years, so it will take some time and effort to cut the heads off of theses snakes, but at least more of the tails are now going.

Thanks to Eileen A.J. Connelly and David Pitt, AP personal finance writers for a great story on these developments!

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Finally Regulating Tax Preparers

IRSOctatel This may be a case of doing the right thing for the wrong reason, but under any circumstance, it is good news for the the 60% of American taxpayers who pay money to tax preparers for help with their returns:  the IRS finally announced that they are going to require certification and registration for tax preparers!  This could finally be a step in regulating the Wild West of tax prep land, which is fraught with abuse.  It is also likely a sop being thrown to the big mega-preparers like H&R Block, Jackson-Hewitt, and Liberty Tax Services to allow them to bring more order to an industry where even being huge only gives them less than one-third of the market.

Even as the lumbering, passive bureaucracy of the IRS moves towards regulation, they note that CPAs won’t have to register, because they are already licensed, and free tax preparers, like those that once existed at the ACORN Centers when I used to work there, won’t have to have special certifications.  What they did not say, but could have said for the free tax preparers is that to get the IRS filing number for a free VITA center, we already had to get certified!  The article in the Wall Street Journal made it sound like the IRS was being generous, but the facts, as usual, are wildly different, since it’s rather a case essentially of having already forced service centers for the poor to have to be regulated, and finally now having them get around to the rest of the industry!

Continue reading “Finally Regulating Tax Preparers”

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