H&R Block stops offering short term loans against tax refunds

This year, H&R Block will not be offering any short term loans against tax refunds. Refund Anticipation Loans, or RALs, are loans lent by a preparer against a potential refund, less a fee. The banking partner of the company was forced out of offering the loans by regulatory bodies.

No more short term loans from H&R Block

The nation’s largest tax preparation service, H&R Block, previously offered a credit product to customers called a Refund Anticipation Loan. The loans, RALs for short, are offered by many tax preparation services. It’s a short term loan against an anticipated tax refund, with a fee subtracted from the refund total. The preparer cuts a check or dispenses instant cash, and the refund check is turned over to the preparation service. In other words, if a person should hypothetically get an $800 tax refund, but needs money now, he or she can get an RAL for $725 against the $800 return. The return check goes to the preparer, if the return is accepted. Recent regulatory action has forced H&R Block to stop offering the loans.

HSBC forced out of bankrolling the loans

According to USA Today, the former partner of H&R Block in funding the cash advances against tax refund checks was HSBC. HSBC was ordered not to proceed with funding any of this type of quick loan to customers by the Office of the Comptroller of the Currency, part of the Department  of the Treasury. This forces HSBC to withdraw from its agreement with H&R Block. H&R Block tried to sue to keep HSBC in the agreement, but was not successful. H&R insists it will have alternatives, but there is likely to be some loss in business as customers from Kansas City to Chicago to San Diego will have to seek RALs from other preparers.

IRS cautions against using RALs

The Internal Revenue Service has long cautioned people not to take RALs against tax refunds. The IRS recommends that people use e-filing, as e-filing through the IRS or affiliated E-file programs is free for some taxpayers, and refund checks can be direct deposited in a couple weeks.

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