The OCC Strikes Again: No RALs for HSBC

The Office of the Comptroller of the Currency (The “OCC”) directed HSBC to stop providing funds for refund anticipation lending.

H&R Block says that HSBC has ended its contract to provide the tax preparation firm with refund anticipation loans. The agreement cancels all of the tax settlement products offered at the Block stores through HSBC. This includes refund anticipation loans as well as the HSBC refund anticipation checks (RAC).

The news, released at 7 pm on Christmas Eve in an 8-K, seals any doubts about Block’s opportunities to advance refund money to their customers in the upcoming tax season. It is the second holiday suprise. Last year, the OCC sent a Christmas Eve letter to Pacific Capital Bancorp with the same news. Stop the RALs. Pacific Capital didn’t release the news to investors until New Year’s Eve.

And to all, a good night.

My friend the Hedge Fund Guy said that he thought that Block would negotiate a better deal, where they might convince HSBC to give them their RAL money this year in exchange if Block would give up their RAL option for the following tax season.

Impact of the OCC’s Directive

This adds some certainty to something that had been merely a “known unknown:” would Jackson Hewitt and Liberty have refund anticipation loans when Block did not? Well, now we know for sure. Jackson Hewitt’s shares have almost doubled in the last week. That may have been a product of time, because with each additional day the possibility of Block pulling together the training and implementation of a refund loan program seemed less and less probable anyway. The fact that this was taking place prior to the season without the debt indicator only added to the import. Block really couldn’t go ahead. They would have depended upon HSBC to weigh in on underwriting. At the same time, there were other factors that could have been the force that buoyed the stock price at JTX. Wells’ decision to extend Jackson Hewitt’s line of credit breathed life into their near-term health.

I think the real impact here will come from the loss of the refund anticipation checks. Consumers have shown more wisdom in recent years by opting to use these checks with more frequency. They give a low-income consumer the ability to satisfy their tax preparation bill without putting out cash. Many of those consumers went to Block. If only the people that can pay cash out of pocket can go to Block, then customer retention becomes a challenge.