If you like to get cash upfront for your tax return, this could be a very different year for you. A government decision late last month banned H&R Block, the largest tax prep company, from getting the money it needs to provide tax anticipation loans. And a new IRS rule that takes effect this year could make it harder for all tax preparation companies to offer loans based on refunds.
Tax preparation loans have been criticized by regulators and consumer advocates as predatory loans that charge people high fees to borrow their own money.
Refund anticipation loans “target the working poor,” according to a report issued last year by the National Consumer Law Center. They “drain hundreds of millions of dollars from the pockets of consumers and the U.S. Treasury.”
At H&R Block, the company was forced to stop giving refund-based loans immediately when the U.S. Office of the Comptroller of the Currency decided on Dec. 23 to ban London-based HSBC bank from funding the company’s loans. The comptroller’s office did not release its decision publicly, but in October it did announce a cease-and-desist order against HSBC for violating the Bank Secrecy Act. H&R block announced the decision in a press release and on its blog.
Whatever the reason for the order, it left H&R Block with no money for refund advance loans (RALs) just a few weeks before the start of the tax season.
“The OCC’s 11th-hour timing will make it difficult for us to put alternative products in place at all of our locations in time for the early part of the 2011 tax season,” Alan Bennett, H&R Block’s CEO, said in a press release. “Millions of taxpayers will be deprived of credit, or they will be forced to use higher-priced alternatives.”
Image: zyphbear, via Flickr.com