Loss of refund loans causes mounting losses at H&R Block

An H&R Block storefront

Tax preparer H&R Block still has not fully recovered from the loss of refund anticipation loans. Photo Credit: socialwoodlands/Flickr.com/CC-BY

Tax preparation giant H&R Block has just filed for another quarterly loss, despite it being the busiest quarter of the year. Though tax return season is when tax preparers make the bulk of their income, the loss of the refund anticipation loan product has cost Block dearly. The loan against tax refunds is facing extinction as a product.

 

Number of preparations increase but fail to keep Block in the black

H&R Block, the largest tax preparation service in the nation, has just released a quarterly earnings report, but there is little in the way of good news in it. In the recent report from Block, according to the Wall Street Journal, the company disclosed that the number of tax returns it had prepared in the previous year had increased by 5.7 percent in the period ending March 31. The company also reported that retail preparations had increased by 2.6 percent during March, but preparation fees had declined by 2.2 percent. Block expects to report more significant earnings after the month of April. However, the tax preparer has been hobbled by the loss of the popular refund anticipation loan product when its financing partner, HSBC bank, was forced to stop funding the loans with block.

Refund anticipation loan going extinct

Refund anticipation loans are popular for people short of cash around tax time, and also for tax preparation services because the loans are profitable. A person has their taxes prepared by a service, such as H&R Block or Jackson-Hewitt. The preparer offers them a loan against their tax refund, which is signed over to the preparer. The borrower gets a check for the amount of their refund, less a fee for the lender. It’s technically a short term loan, as it’s repaid very soon. The product is demonized as being similar to payday loans, though there will be few firms still offering the loans soon enough. The IRS can no longer report on the amount or status of a persons’ income tax return to certain types of loan lenders, which disqualifies most banks from meeting FDIC underwriting requirements for funding RALs for tax preparation services. At the end of this tax season, Republic Bank and Trust, a small bank in Louisville, Kent., will be the only bank in the nation providing funding for RALs, according to the Washington Post.

IRS urges electronic filing

The Internal Revenue Service has long advocated that people in a rush electronically file rather than resort to any loans against their tax refunds. Direct deposit can have tax refund money in a persons’ bank account in two weeks or less, but for those that really are counting on a return are not at a loss for finding out where their return is, according to Reuters. Simply head to the Where’s My Refund? section on the IRS Website, and enter the appropriate information. Do not go to any website other than the IRS site to track your refund, as it is likely a scam.

Sources

Wall Street Journal

Washington Post

Reuters

IRS Where’s My Refund?

 

 

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