Profits down at H&R Block because of decrease of reimbursement cash advance product

H&R Block has been losing money this tax season, as the loss of the opportunity to offer customers a cash advance against refunds has cost the firm consumers. The nation’s largest tax preparation service recently released an income report. The information indicated the company is earning far less during tax season than in previous years. Regulatory action by the FDIC forced the chief financing partner with H&R Block to drop the loan solution, which forced Block to follow suit. Resource for this article – Loss of refund cash advance product cuts H&R Block revenues by MoneyBlogNewz.

This year's tax season slow

Getting tax returns prepared is something that H&R Block has lost out on this season. CNBC accounts that fewer individuals have paid for tax returns to be prepared for them. In the middle of February, activity started again although January earnings can be close to breaking even. From Jan. 1 to Feb. 15, online returns prepared through H&R Block increased by almost 28 percent, though total digital tax returns only registered a 7.3 percent increase since the launch of the year. H&R Block is no longer offering reimbursement anticipation loans as a cash loan. This has probably caused part of the 7.6 percent decrease in preparation fees.

Lending against reimbursement stopped

Short term loans against tax refunds are similar to payday loans, in that a customer is advanced money quickly instead of having to wait for their tax reimbursement. The reimbursement is signed over to Block, and borrowers receive lower than the total refund because fees are deducted. The lower and middle income consumers really liked the anticipation financial loans which H&R Block declared it wouldn't offer in Dec. 2010. The financing partner of the financial loans, HSBC, did what the Federal Deposit Insurance Corporation required. That means they could not lend either. In 2010, about 17 percent of Block customers came for the loan.

FDIC countersued by refund loan lender

A prominent tax refund lender has sued the Federal Deposit Insurance Corporation for interfering in the tax reimbursement loan business, according to Business Week. The FDIC is getting sued by Kentucky based Republic Financial institution and Trust for overstepping boundaries by saying the financial loans were "unsafe and unsound" after the Republic was ordered to stop the loans. About 836,000 individuals got $4 billion in refund financial loans last year from Republic. There was only a 2.13 percent default rate. The suit alleges the FDIC is intending to coerce lenders into dropping a product that government officials do not like, even though the product is popular.

Articles cited

CNBC

cnbc.com/id/41747080

Business Week

businessweek.com/ap/financialnews/D9LN4P5G0.htm