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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.
A new non-profit group called Communities Creating Opportunity is making an effort to create a community credit agency in Kansas City. The credit agency’s goal is to provide low-interest payday loans to consumers who frequent cash advance lenders. They believe they will be a very good alternative to traditional payday loan lenders, as they will provide the same service, but at a maximum interest rate of 36 percent.
The emergence of this non-profit comes at a time when Kansas City volunteers are circulating petitions to include a loan cap on the fall 2012 Missouri ballot.
Interest rates and rollovers are the two largest sources of contention when it comes to payday loans. Lenders who provide this quick, no-credit-check cash claim the high interest rate and rollover fees are crucial to keeping in business and turning a profit. Consumer protection advocates claim such policies propel payday providers into the realm of predatory lending, as they gouge borrowers and trap them in a recurring cycle of debt.
Elliot Clark sides with the consumer protection advocate’s view as he personally experienced the payday loan debt trap. Four years ago, after his wife broke her ankle and was forced out of work for more than four months, Clark turned to a payday loan for help, according to Fox 4 News.
“Eventually one payday loan turned into another and then another,” Clark said. “In a short time frame, I had a total of five payday loans, totaling $2,500 but not being able to pay them all off at one time, I wound up paying them $30,000 over a three year period.”
“That’s in interest,” he clarified.
The largest payday provider in Kansas City, QC Holdings, said if Clark had obtained financing through them, he could have received a two month extension on his two-week loan, at no extra cost. But Clark still supports the Kansas City volunteers’ petitions to establish an interest rate cap of 36 percent.
“Banks have been making money off of 18 percent interest rates, or 21-27 for years,” Clark explained. “But these payday loan companies tell us they can’t survive on 36 percent. Yes, you can. Banks have been doing it for a long time. How come you can’t?”
The Small Business Administration (SBA), typically known for originating small business loans, has announced that it will be teaming up with the American Association of Retired Persons (AARP) in an effort to provide business loans to borrowers of 50 years and older.
The SBA and AARP will host online training courses and the duo hopes to train 100,000 older entrepreneurs who are interesting in either starting or running a small business.
“No matter what your age, if you have an idea or a business that’s ready to move to the next level, the SBA wants to make sure you have access to the tools you need to start and grow,” said SBA Administrator Karen Mills in a press release. “We know that by working side-by-side with AARP, we will be able to reach baby boomers and Americans over the age of 50 who have years of professional experience working for others and are ideally positioned to step out and become their own boss. And, in doing so, they will become job creators and drivers of economic growth in their communities.”
The online courses hosted by the two organizations will consist of self-assessments, customized content, and a webinar series specifically tailored to older entrepreneurs. If the SBA finds an applicant suitable to start or run a business, they may offer capital in the form of business loans to get the applicant’s idea up and running.
The SBA hopes to turn the years of experience acquired by the more than 70 million Americans over 50 years old into a chance to start or run a “financially practical ‘encore’ career.”
“Many baby boomers are working beyond retirement age and choosing to stay active and engaged in the workforce,” Mills continued. “For many older entrepreneurs, starting a small business can be an opportunity to transform a lifetime hobby of interest or years of professional experience into a lucrative line of work.”
In order to take an online course, potential business loan applicants need only visit the SBA’s training center.
According to the Baltimore Business Journal, several banks and lenders in the Baltimore area have begun offering loans to help businesses and homeowners that have been affected by super-storm Sandy.
One lender, SECU credit union, is offering loans up to $10,000. These “Hurricane and Flood Relief” loans are for current members that have sustained damage to their homes, cars or property. These loans carry a low annual percentage rate of 5.99 percent for up to 60 months. They are being offered until Nov.29.
Susquehanna Bank is offering its own customers unsecured personal loans up to $10,000 for house damage caused by Sandy. The bank is only offering these unsecured personal loans to its customers in Maryland, southern New Jersey, eastern Pennsylvania, and parts of West Virginia. Similar to the products offered by SECU credit union, these unsecured personal loans come with 4 percent interest rates for up to 60 months. Susquehanna bank typically only offers 9.99 percent interest on its unsecured personal loans that are lent outside of storm-related disasters.
An unsecured personal loan is financing that does not require collateral. Normally, loans are secured with collateral, which is a valuable asset like a home. Since there is no collateral required for unsecured financing, lenders typically increase the interest rates on these financial products.
Homeowners aren’t the only ones benefiting from generous financing in the wake of Sandy’s destructive wrath.
M&T Bank is offering affordable loans and lines of credit to its business customers that are in Maryland and surrounding areas. Additionally, the bank is willing to waive late fees and offer other forms of assistance to burdened customers in this time of need.
Financial titan Bank of America is also lending a helping hand. The bank says it will adjust or extend payments on outstanding loans and credit lines, such as credit cards, for customers in Maryland and other Sandy-damaged areas. Bank of America will also offer credit line increases for interested customers that currently own Bank of America Visa or MasterCard credit cards.
The City of Oakland may team up with Kiva to offer micro-loans to small businesses. The City Council is considering a partnership with the San Francisco-based lending company that would allow three Oakland businesses to receive zero-percent interest business loans for $10,000.
Under the deal, Oakland would become a “trustee” in Kiva’s new Zip program. During its first four years in operation, Kiva focused solely on allowing philanthropic individuals to fund projects around the world with small, $25 business loans.
In 2009, Kiva brought its interest-free microlending model to the United States.
“Most people think of microfinance as something that helps people in the developing world alone, but the impact of microfinance can be felt in any community that supports creative, industrious entrepreneurs,” said Premal Shah, President of Kiva.org, in a statement.
Under the Zip program, a business must be vetted by a trustee whose credibility is tied to the success of the businesses it vets. If the City Council approves the partnership, the city would serve as trustee for three Oakland businesses. Once those loans are repaid, new businesses would be added to the program.
The partnership was proposed by City Councilmember Libby Schaaf and city attorney Barbara Parker, with the hope that the program would boost the city’s economy. As of March 2013, Oakland’s unemployment rate was 11.8 percent, down from 13.1 percent in January. However, at nearly 12 percent, the city’s unemployment level is still well above the statewide average of 9.4 percent and the national average of 7.6 percent.
By providing business loans to entrepreneurs who have been denied traditional forms of credit, the businesses selected for the program might be able to add to the workforce. Loretta Nguyen, an Oakland business owner, told ABC7 that she would use such a loan to consolidate her high interest debt and expand her workforce.
According to an ABC7 source, if the partnership is approved, the city hopes to select its first business within the next two weeks.