Using H&R Block to Get Tax Refund Loan? Don't Waste Your Money

Tax payers who file their returns in January are seeing what everyone else will confront  in coming months: paying exorbitant fees to H&R Block and other tax preparers for processing Refund Anticipation Loans (RALs) is now virtually worthless. Functionally insolvent banks are refusing to lend against tax refunds – even at usury interest rates.

H&R Block, a national leader in processing RALs through tax preparation for filers expecting refunds, has been critically scrutinized for years for preying on low income individuals. Yet cash strapped filers saw benefit in paying excessive filing fees in exchange for receiving refunds on the same day, or in 1 or 2 days, instead of several weeks when filing directly with IRS. That minimal benefit is basically gone.

The same credit crunch that has seized lending in mortgage, credit card, and commercial loans has hit the tax refund market. Banks are refusing to lend. Tax filers expecting RALs are in for a rude awakening this year. They are finding the RALs are being denied by lending banks only after committing several hundred dollars in tax preparation fees.

This year, H&R Block has “tightened” it's loan standards for RALs, an essentially guaranteed loan against tax refunds. H&R Block customers who have received RALs in the past are finding they suddenly do not “qualify” for the loan. They find out only after they consent to have $200 - $300 or more withheld from their refund as payment for tax preparation fees. If filers knew they will not receive an accelerated refund  via RAL, they would likely opt to go directly to the IRS to file, and save $200 - $400 in fees.

Oddly, H&R Block works with the USA subsidiary of British owned HSBC to process and provide RALs. When HSBC, “the world's local bank,” bought U.S. based Household International in 2003, it became the world's top subprime lender. In addition, HSBC USA is said to have lost up to $1 billion due to making loans to funds that invested with disgraced financier Bernie Madoff. Yet HSBC now decides it cannot lend RALs to H&R Block clients. H&R Block is silent on these developments when customers ask. Tax preparers in H&R Block's downtown Brooklyn office are hard pressed to answer basic questions or provide copies of all filer documents when requested. 

Both H&R Block and Jackson Hewitt, the nation's second largest processor of RALs, have been subject to class action law suits charging they violated state and federal laws in marketing high-cost RALs mainly to low-income customers. In 2007, Jackson Hewitt, Inc. settled a  lawsuit filed by the California Attorney General, agreeing to pay $5 million, including $4 million in consumer restitution. In Jan. 2009, H&R Block Inc. agreed to a $4.85 million settlement that includes $2.45 million in restitution for California consumers. 

Unscrupulous dealings with tax filers is not limited to H&R Block and Jackson Hewitt. Liberty Tax Services, a tax preparation service with 3 locations in Brooklyn, has found a novel method for placating filers who unknowingly apply for RALs that would ultimately be  denied.  The Liberty Tax Services office on Fulton Street in downtown Brooklyn gives filers a $50.00 bill in cash upon completion of filing a return. Taking into account the $50.00 bill, Liberty Tax Services fees are even higher than H&R Block.