US tax preparation giant H and R Block has announced changes to its refund application loans (RALs) for the next tax filing season in the wake of severe criticism of the controversial products.
In Tuesday's announcement, the company said that enhancements will provide clients with better information about debts that could affect their tax refund loan and an improved disclosure process to ensure clients can make more informed decisions about how to receive their tax funds.
The enhancements follow H&R Block's September announcement that it will reduce the cost of refund lending and target opening 1 million low-cost bank accounts for free during tax season 2007.
"Besides saving our clients money, we're doing even more to make sure H&R Block customers receive the best service and disclosures in the industry," said Mark A. Ernst, chairman and CEO of H&R Block.
"As our clients' tax and financial partner, we are dedicated to providing our clients with the best products at the best prices," he added.
The company has been forced to bring about the changes after a string of lawsuits accused the company of massively overcharging low income clients for this service.
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 finance charge on an 11-day loan of this amount translates to an annual percentage rate of 36%. The loans are provided by the US arm of British bank HSBC.
"We are confident that by teaming up together, H&R Block and HSBC can provide clients the opportunity not only to make more informed choices, but also that those choices are for more innovative products which specifically address our clients' needs," said Patrick A. Cozza, group executive of insurance and taxpayer financial services for HSBC.
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