Tax Prep Giant To Cut Costs Of Controversial Refund Loans

by Leroy Baker, Tax-News.com, New York

11 September 2006

US tax preparation giant H and R Block has announced plans to significantly reduce the cost of refund anticipation loans for tax season 2007, after a string of lawsuits accused the company of massively overcharging low income clients for this service.

The idea is part of a four-part plan by the company to launch into the area of financial services with products such as low-cost banking facilities, high-yield savings products and personal finance education services.

The company has said that it will utilize its nationwide network of 12,500 tax offices to enable clients to open bank and savings accounts conveniently at tax time and Mark Ernst, H&R Block's chairman and chief executive, told the firm's annual meeting of shareholders in Kansas City that the reduced fees would "set a new standard that we challenge others to meet".

RALs are short term advances that tax preparers can extend to their customers, who then sign over their official tax refund checks when they are issued. Interest rates on such loans are high, equating to as much as 100% on an annualized basis, and have attracted strong criticism from governmental organisations and advocacy groups.

Under the more favorable terms to be introduced next year, the cost of a $2,800 RAL - the average loan size for an H&R Block customer - would be cut by 40% compared to last year.

The company's move comes after it settled a long-running class action lawsuit related to its sale of RALs, for $39 million plus interest. The suit covered 1.72 million customers who bought the loans between April 1994 and December 1996.

The company has also come under pressure from state governments, including Connecticut Treasurer Denise L. Nappier, North Carolina Treasurer Richard Moore and New York Comptroller Alan Hevesito to withdraw RALs from its range of services.

Recommended