People have a lot of questions about the OCC’s directive to make HSBC end their Settlement Products Agreement with H&R Block.

Here are a few:

• Why did the OCC do it?
• Will the FDIC do the same thing?
• Will H&R Block be able to come up with a substitute means of helping their customers settle the cost of their tax preparation fees?

HSBC reports that the OCC required them to terminate their contract, known as the HSBC Settlement Products Program, on Christmas Eve. Block’s 8-K reports that the OCC directive required HSBC to immediately stop providing any form of refund anticipation loans and refund (more…)

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 (more…)

H&R Block says that it has entered into talks with HSBC USA to smooth over their impasse on their contested tax settlement contract.

Block didn’t offer details and they didn’t submit a filing to the Securities and Exchange Commission. The latter would only be necessary if there was news that had a “material, definitive” impact on the company’s financials.

Block and HSBC amended their tax settlement products (refund anticipation loans and refund anticipation checks) in the spring of 2010. Block makes about forty percent of refund loans every year. With news that other tax preparers were struggling to secure funding, Block seemed poised to have a competitive advantage of sorts.

This may be information masquerading as news. The parties have a hearing next Monday. Time is running out. Block can’t wait until December 15th to get a RAL agreement in place. They have to have prices from HSBC. They have to develop software. They need to train staff on the new means for a RAL application in the post-debt indicator marketplace.

H&R Block filed a lawsuit (8-K here) in the Eastern District of Missouri this morning against HSBC that would force the US subsidiary of the British bank to honor their refund anticipation loan agreement.

H&R Block’s Katie O’Neill Rauber told reporters that HSBC is citing the IRS’ decision to cease to offer the debt indicator as grounds for nullifying their 2005 contract to provide funding for refund anticipation loans.

With the loss of the debt indicator, banks face more risk with RALs. Block had indicated that it has a plan for underwriting these loans. Nonetheless, the risk is much higher than in the recent past. Perhaps the risk is too much for HSBC. It is also possible that the loss of the (more…)

Unless I am mistaken, H&R Block will share in much of the risk for its refund anticipation loans during the upcoming tax season.

Block has a relationship with HSBC for its refund products.  Block’s customers are delivered to HSBC for refund loans.  HSBC advances the customer cash based on the expectation that they will have a refund.  In the past, that expectation was backed up by the IRS debt indicator. HSBC won’t have that kind of certainty next year.

My reading of Article IV, Section 4.5, part (a) of this filing, made in March 2010, is that Block will have to refund to HSBC on their losses from RAL advances that cannot be collected.

Tax refunds are going to be very risky without the debt indicator. Last year, a high percentage of refund loans were turned down. Many people have outstanding liens, either for child support or back taxes or for unpaid student loan debt. The debt indicator caught those returns. Now, it’ll be an unknown.

Block shareholders should be paying attention to this situation. HSBC might be one of the world’s largest financial institutions. Block is not.