12/28/10

Down Goes RALs at H&R Block

Preying on the poor and ignorant just keeps getting harder! H&R Block won't be offering "rapid refunds" this year: 
NEW YORK (AP) — Millions of H&R Block Inc. customers who relied on short-term loans backed by their expected tax refunds will not have that option this year, since Block's banking partner was forced by federal regulators to stop offering the loans.
It's a blow to Block, the nation's largest tax preparation company, which could lose tax customers to competitors still offering the loans and has virtually no time to find a new funding partner before tax season starts in January.
That means Block could lose millions of dollars in revenue, since nearly 45 percent of its customers use a refund anticipation loan or refund anticipation checks. The company made about $146 million on the two products in 2010.
RALs, often referred to as "rapid refunds," are short-term loans backed by an expected federal income tax refund. A refund anticipation "check" is actually an account where a refund is deposited. This enables taxpayers to have their tax return preparation fees deducted from their refund, rather than paying up front. Both products are typically used by low-income customers who file their taxes early in the season.
I'm glad that someone has finally stepped in to stop this completely ludicrous practice and I hope that other firms are stopped from offering these ripoffs. Even though stopping RALs is an unambiguously good thing, H&R Block will still be offering RACs backed by their own bank. Here's the company's description of how that works:
You could get money quickly and conveniently with an H&R Block Bank Refund Anticipation Check.
You could get up to $9999 FAST† with a Federal RAC and pay nothing out of pocket at the time of your tax preparation. A Federal RAC offers you a convenient way to receive money faster than a mailed federal refund check from the IRS when H&R Block prepares and electronically files your taxes. Receive the balance of your refund, minus fees, on an H&R Block Emerald Prepaid MasterCard®2, Direct Deposit or check in approximately 8 to 15 days from IRS acceptance of your efiled tax return
Benefits of a Federal RAC:
  • Receive up to $9999 FAST†! (Equivalent to your federal tax refund, minus fees)
  • Pay nothing out of pocket, have tax preparation fees deducted from your RAC funds
  • Typical release of RAC funds to you in 8-15 days
  • Multiple methods of disbursement are available (Direct deposit, H&R Block Emerald Prepaid MasterCard®2 or check ($20 additional fee for check))
  • Application process is easy
For a lot of poorer taxpayers, filing a return is a bonanza due to the Earned Income Tax Credit and Additional Child Tax credit, which are basically social welfare disbursements. The only way to get the sometimes multi-thousand dollar payments is by filing a return and this is where preparers get to skim a little off the top. But the skimming doesn't just stop with return preparation. Let's say you don't have direct deposit (or a bank account). Then you can get your RAC on the Emerald Card. Sounds swanky, right? Swanky and way beneficial to banks! Here's a neat feature:
Cash Access
Use your card to get cash 24 hours a day at more than 1 million ATMs worldwide displaying a MasterCard Brand Mark. The fee is just $2.50 per transaction when using ATMs in the U.S. or when traveling abroad. **
   **ATM owner may charge an additional fee.
Stories like this convince me of a few things. 1) The government, if it's going to keep an income tax, needs not only a simpler tax system, but needs to stop distributing social welfare payments through the IRS. It's just allows too much predation. Maybe it can just collect the information on the return and sporadically mail out payments- I don't know. 2) Poor people need better access to banks and credit. Same-day check cashing outfits, prepaid debit cards and all of that kind of nonsense is a massive transfer of wealth from those who need it most. It's disgusting and the government ought to do something about it. I think maybe a smaller, more progressive state should try to get into the banking business (at least from transactional credit and small-time checking/savings operations) and we'll see if a pilot program could lead to larger adoption. I don't know enough about law or finance to know if this is legal or feasible, but I think it's a worthwhile aim to reduce transaction costs as a way of promoting overall social welfare.

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