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Refund Anticipation Loans

Rumors about the Debt Indicator

Adam Rust's picture

Posted July 20, 2010

Hanging over the entire retail tax prep sector is the uncertainty about what the IRS will do to the debt indicator. During his comments in May to CERCA, Mark Ernst made it clear that he expects better results from the program.  Here is part of what he said back then:

The Debt Indicator as it is currently delivered is a public good – meaning the IRS provides this information so that consumers can get an advantage they wouldn’t be able to get otherwise. In as much as the DI is the primary underwriting tool, that advantage should really come in the form of lower prices. But in fact prices are higher for RALs today  than they were when the DI didn’t exist. That suggests that the entire value of the DI is going to industry participants and none is going to consumers when, arguably, all of its value should go to consumers.

Why Did Tom Bloch Split from H&R Block?

Adam Rust's picture

Posted July 19, 2010

It is not a good sign when the co-founder's son resigns because he doesn't agree with the business plan of a company. It is even worse when he goes to the local press to vent his frustration. Unfortunately, that is what Tom Bloch did this weekend.

Bloch told the Kansas City Star "My reasons can be summarized as a disagreement over the direction of the company." He disagreed with the Board over their decision to buyback 2 million shares last year. It turned out he was right. Since then, Block shares are

New Direct Deposit Rules

Adam Rust's picture

Posted June 28, 2010

President Obama's new mandate that all recipients of government checks could be a game changer in the prepaid market. The policy, which makes all recipients of repeat government payments required to accept their payments through direct deposit, should put more Treasury-designed Direct Express cards in the pockets of Americans.

The new rule makes a lot of sense. The motive for this policy, reported by ABC on June

Interesting Reports from H&R Block

Adam Rust's picture

Posted June 25, 2010

H&R Block's Q4 Earnings Call is interesting, not just to someone who follows tax preparation, but what the changes at this company tell us about the nature of our larger economy.

Although many would agree with Woodrow Wilson that 'what's good for GM is good for the country, and vice versa," it could also be said that whatever ills plague working people are sure to have an impact on H&R Block. Block is the nation's largest tax preparer. They file one in every seven returns in the United States.

While they do have a broader range of services than some of the other chains, they still depend upon basic 1040A

Wells Fargo: Financier to the RAL Business

Adam Rust's picture

Posted June 4, 2010

While BankTalk goes to great length to excoriate (big word!!!) the immediate providers of refund anticipation loan dollars, there are other financial institutions that make RALs possible.

Wells Fargo, for instance, is providing the credit lifeline that keeps Jackson Hewitt in business.  On April 30th of this year, Wells entered into a new definitive material agreement to restructure $200 million of debt to Jackson Hewitt. A key fact, in my mind, is that the loan specifies that Wells' willingness to finance JTX is dependent upon the RAL business.

A source from a New York investment firm tipped me off on this.  He said that Wells has a

More Trouble for Mo' Money

Adam R.'s picture

Posted May 7, 2010

Hear that sound? That is the clock ticking on Mo' Money's ongoing status as a business in North Carolina.

Mo' Money Taxes of North Carolina has until 5 pm today to decide if it will continue to defend itself from an enforcement action brought against the tax preparation chain by the North Carolina Department of Justice.  DOJ is pursuing the case on behalf of the North Carolina Commissioner of Banks.

A hearing has been scheduled for Thursday, May 13th in Raleigh. If it goes forward, Mo' Money will face the possibility of losing its license in North Carolina. The impact of such a ruling would likely have greater consequences. If North Carolina prosecutes Mo' Money, it only stands to reason that attorneys general of Virginia, Tennessee and other states would review their business practices.

The Department of Justice sent testers into Mo' Money shops in North Carolina. The testers all came back with the same story. Mo' Money never displayed the costs of its refund anticipation loans.  This is a violation of the North Carolina Refund Anticipation Loan Act.  The

Strategic Options for H&R Block, II

Adam Rust's picture

Posted May 5, 2010

H&R Block needs to get out in front of the refund anticipation loan issue before RALs envelope their public reputation.

I see two potential responses that management could pursue at this moment.

Inoculate the Competition. Make the price and terms of the Block Classic RAL so good that no one else will be able to sell them. In this scenario, Block reprices RALs as a no-margin courtesy product.  The price from HSBC is fixed. Block can't change what HSBC charges, but

RAL Summit on Thursday

Adam Rust's picture

Posted May 4, 2010

The Council for Electronic Revenue Communication Advancement, a close group of banks and tax preparers organized at the invitation of the IRS, will meet Thursday at the Crystal City, Virginia Marriott.   It might seem like the kind of meeting that would bore a baked chicken, it could be the setting for the IRS to announce how it might act on the suddenly volatile refund anticipation loan market.

All of the players will be there.  Mark Ernst is scheduled to speak, along with Director of Electronic Tax Administration and Refundable Credits David Williams.  Sponsors include:

  • JP Morgan Chase
  • Republic Bank & Trust
  • Santa Barbara Tax Products Group
  • River City Bank
  • H&R Block
  • Intuit

Congress is holding bank lobbyist month, and the bankers cross the Potomac for Mark Ernst.  What's up?

A Strategic Challenge for H&R Block

Adam Rust's picture

Posted May 4, 2010

With Chase out of the RAL business, H&R Block is faced with a identity crisis.

H&R Block is about to own the broken refund anticipation loan market. For tax years 2011 through 2013, Block will have a competitive advantage with a substantial regulatory moat.  Through its sound contract with HSBC, Block will be able to offer refund anticipation loans to as many customers as would like one. Jackson Hewitt and Liberty will have some RALs, but they will have to ration their loan dollars. Unless something changes, the independents will be out of luck.

Conventional wisdom says that Block uses the lack of RALs to open up more market share in the retail space.  That route probably leads to more tax return volumes. Since those new customers are coming to Block for their RALs, then in this instance, revenues from short-term loan products will also go up.

Fine, except it isn't that simple.  RALs are no longer under the radar. Consumer advocates have been upset about refund anticipation loans for some time.  Now, regulators and the media are catching on as well.  The OCC finally put some energy into their "internal

The Next Question: Tax Settlement

Adam Rust's picture

Posted April 29, 2010

JP Morgan Chase's decision to exit refund anticipation lending means that 13,000 independent tax firms will no longer have a means to advance their customers the cost of tax preparation.  Chase gave notice this week, with the intent to give their former partners as much time as possible to prepare for the next tax season.   RALs may not be entirely eliminated before next year, but at the same time, the marketplace is fractured. Block will have RALs, and some stores in the Jackson Hewitt and Liberty chains may as well.  The "mom and pops" will not, unless something changes shortly.

This should put pressure on policy makers to find an answer for tax settlement. It is a question that concerns not just the IRS, but also the OCC, the tax prep chains, and even consumer advocates. What is to be done?

We still can't ignore that RALs were a problem. They were a solution to tax settlement costs, but they came at a high cost.  There were all kinds of externalities for all kinds of market players.

  • They seemed to invite tax fraud.
  • They created the platform for all kinds of additional fees, from "technology fees," to "e-file fees," to "account fees."  The money drained the accounts of needy people, and undermined the impact of the Earned Income Tax Credit.


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