The news is reporting that HSBC Refund Anticipation Loans (RAL’s) are harder to get this year. Often the target of consumer activists, these loans often come with interest rates of 100 percent or more.
One hurdle that many are having a tough time getting over is that HSBC, the bank that issues RALs to H&R Block customers, conducts credit checks and risk assessments to judge the likelihood loans will be repaid. And HSBC spokeswoman Cindy Savio confirmed that the bank has tightened its credit criteria this year, but would not elaborate on specifics.
In reality, when individuals file their own taxes electronically, refunds are often issued in 6 to 10 days without and help from H&R Block or HSBC. That means you protect your privacy and don;t get spam from HSBC, Block, or any of their partners.
RAL’s will soon be a product of the past, as the IRS continues to streamline and expedite processing of taxes. E-Filer’s get prompt service now, and soon few people will need H&R Block and HSBC.
Many people who seek RALs have weak credit histories. “More than half, couldn’t get a loan under normal circumstances,” said John Hewitt, chief executive of Liberty Tax Service, a tax prep chain based in Virginia Beach, Va. “If the bank wasn’t fairly certain that they would get the money from the IRS, they wouldn’t get a loan.”
Having said that, and while trying to be politically correct, there is one area addressed by insiders who worked at H&R Block - FRAUD. Kids without social security numbers, different women bringing the same children to different H&R Block offices, and unmarried fathers claiming the same children claimed by unmarried mothers is common in larger cities. If and when the perps are caught they blame it on H&R Block.
RAL programs have been the target of lawsuits in the past decade, including several that accused the tax prep companies of inadequate or misleading disclosures in loan applications. In January, H&R Block reached a $4.85 million settlement with California Attorney General Jerry Brown that prohibits the company from marketing RALs as early tax refunds rather than loans. In its 2008 annual report, H&R Block detailed $113.7 million in costs related to other RAL litigation since 2003. Jackson Hewitt Tax Service Inc., the nation’s second largest chain, reached a similar $5 million agreement with the California attorney general in 2007.
Fraud aside, RAL’s are a product that should never exist in the first place. Block and HSBC take a percentage or a fee, and in fact take money away from end-users of social programs such as Aid to Dependent Children.
Liberty Tax’s Hewitt defended the costs by noting there are many instances in the marketplace when people are willing to pay extra for speed. “We know it’s a bad deal, but if the customer wants it, if you don’t have it, you’re going to be at a competitive disadvantage,” he said.
Related posts:
[...] News Release - Refund Anticipation Loans harder to get : The HSBC … [...]