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September 13, 2011 – H&R Block, the nation’s largest tax preparer, announced today that it will not be able to offer refund anticipation loans during the 2012 tax season due to an increase in the amount of tax returns the company prepares and the decline in demand for the high-cost loans.
This is the second consecutive year in which the company has not offered these loans, eliminating them last year as a result of an Internal Revenue Service (IRS) regulation that did not allow banks to fund them.
In preparation for the 2011 tax season, the IRS announced that it would no longer provide tax companies with the debt indicator, which was the figure they used to determine the anticipated refund amount.
“Refund Anticipation Loans are often targeted at lower-income taxpayers,” IRS Commissioner Doug Shulman said in a 2010 press release. “With e-file and direct deposit, these taxpayers now have other ways to quickly access their cash.”
Last year, only a few smaller tax firms were able to offer the service through a single bank, Republic Bank and Trust in Kentucky. H&R Block expressed concern that regulations were only applied to certain banks and tax preparation agencies, not all.
Regardless, the company maintains that eliminating this service from its offerings did not and will not affect its success.
“We evaluated our options to determine what was best for our clients, the business and our shareholders,” H&R Block President and CEO Bill Cobb said. “Knowing we had a strong 2011 tax season without (refund anticipation loans), our analysis did not present a compelling reason to bring back the product in 2012.”
As evidence of this, the company gained 18.6 percent more first-time clients in 2011.
A refund-backed loan offers the amount of the taxpayer’s federal tax refund with a short-term payback, which was helpful in the times when the IRS took up to eight weeks to issue the refund checks. According to a press release from H&R Block, however, the IRS payments will be issued within a two week period in the 2012 season. This is one reason behind the decrease in demand for the loans.
Another reason H&R Block cited for stopping the service was the high fees associated with the loans. According a release from the Consumer Federation of America, this year the fees for refund anticipation loans were $61 for a $1,500 loan, signifying a 169 percent APR – although it is paid off in just a few weeks.
To compensate for those who would have applied for the loans, the company announced that it would continue to offer other options, such as refund anticipation checks, which allow individuals to use to their refund to pay tax preparation fees.