H&R Block Pulls Plug on Tax-Refund Loans

H&R Block Inc. (HRB), the biggest preparer of U.S. tax returns, won’t offer loans tied to the size of customers’ refunds.

H&R Block first halted so-called refund-anticipation loans last year after regulators told the bank that provided financing to stop, the Kansas City, Missouri-based company said today in a statement.

“Knowing we had a strong 2011 tax season without RALs, our analysis did not present a compelling reason to bring back the product in 2012,” Chief Executive Officer Bill Cobb said in the statement.

In December, U.S. regulators barred HSBC Holdings Plc (HSBA) from offering tax-refund anticipation loans, prompting the London- based bank to end an exclusive contract with H&R Block three years early.

The short-term loans had been criticized by regulators and consumer groups for high interest rates, which may be 124 percent at some firms. Their popularity waned as the Internal Revenue Service shortened the wait for refunds from eight weeks to two or less, the company said.

Jackson Hewitt Tax Service Inc. and Liberty Tax Service, two competitors, still offer RAL loans, according to their websites.

“Yes, this puts them at a slight disadvantage because some of their competitors still offer the loans, but they were able to grow last year and take some market share even without it, and I think they can build on that again this year,” said David Burtzlaff, an analyst with Stephens Inc. in Dallas.

Market Share

Loss of the loan program didn’t prevent H&R Block from expanding its market share for the 2010 tax year, so the announcement will have little impact on the company’s profitability, said Michael Turner, an analyst with Washington- based Compass Point Research & Trading LLC.

“Realistically, this is more of an advertising ploy to get customers in,” Turner said.

Given that the company was able to increase its market share to slightly above 10 percent of the retail tax return market, “this is the year that will really be a test to see if they can grow their share even without the loans,” Turner said.

Total U.S. returns prepared by the firm in fiscal 2011 climbed 6.5 percent, compared with an estimated 1.1 percent gain in industrywide filings at the Internal Revenue Service, H&R Block said in June.

H&R Block offered 2.7 million RAL loans in the 2009 tax year before being blocked from offering them for the 2010 tax year, according to Gene King, a company spokesman.

“At some point the RALs are going to go away, and I think Block will benefit and take more market share because of its size,” Burtzlaff said.

To contact the reporter on this story: James Sterngold in New York at jsterngold2@bloomberg.net

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net