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H&R Block can’t offer loan in anticipation of tax refund

NEW YORK — Millions of H&R Block Inc. customers who relied on short-term loans backed by their expected tax refunds will not have that option this year, because Block’s banking partner was forced by federal regulators to stop offering the loans.

It’s a blow to Block, the nation’s largest tax-preparation company, which could lose tax customers to competitors still offering the loans. The company has virtually no time to find a new funding partner before tax season starts.

That means Block could lose millions of dollars in revenue, because nearly 45 percent of its customers use a refund anticipation loan or refund anticipation checks. The company made about $146 million on the two products in 2010.

Block’s “rapid refunds” are short-term loans backed by an expected federal income tax refund.

A refund anticipation “check” is an account into which a refund is deposited. This enables taxpayers to have their tax return preparation fees deducted from their refund, rather than paying upfront.

Both products are typically used by low-income customers who file their tax returns early in the season.

Block’s contract with HSBC Bank to back refund anticipation loans dates to 2005. Bank regulators ordered HSBC to stop funding the high-interest loans, which typically are offered to customers with spotty or no credit histories.

A spokesman for the federal Office of Comptroller of the Currency, the Treasury Department agency that regulates national banks, would not provide any explanation for the directive, stating that such actions by the agency are confidential.


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