Letter to H&R Block Regarding fees Charged for Refund Anticipation Loans

February 27, 2002

Thomas Zimmerman, President, Tax Services
H & R Block
4400 Main Street
Kansas City, MO 64111

VIA FACSIMILE: (816) 753-5346

Dear Mr. Zimmerman,

We write to express our deep concern with the fees charged for refund anticipation loans by H&R Block and about your partnership with ACE Cash Express to provide high-cost check cashing services. H&R Block markets itself as "America's most trusted tax partner." As a national leader in tax preparation services, we believe H&R Block has a responsibility to set a higher standard for the industry.

Specifically, we ask you to:

Fully educate your customers that by filing their taxes electronically and deposited directly into their bank accounts they may gain access to their refunds in as little as ten days and avoid high annual percentage interest rates of 67% to 773% for a Refund Anticipation Loan;
Charge interest rates for refund anticipation loans no higher than credit cards; and,
Make loan proceeds available in cash to borrowers without payment of a check cashing fee.

High Cost & Short Term of Refund Anticipation Loans

According to your website, a Refund Anticipation Loan takes approximately two days. If the same consumer filed her taxes electronically and had the funds deposited directly into her bank account, she could receive the funds in approximately ten days. Therefore the consumer pays these high fees to receive her refund eight days earlier. According to a recent report by the National Consumer Law Center (NCLC) and Consumer Federation of America (CFA), the fee for a RAL for a $1,900 tax return, the average federal tax return in 2000, is $74.95. The interest rate on such a transaction calculated as an annual percentage interest rate is 149.9%.

To us it appears there is no need for such a high interest rate given that the loan is based on a tax return prepared by H&R Block for which consumers already pay a fee. Because the refund anticipation loan application is based on a tax refund prepared by H&R Block, it seems to us that there is no justification for charging rates in excess of more reasonably priced, short-term credit products such as credit cards.

H&R Block's Partnership with ACE Cash Express

H&R Block's partnership with ACE Cash Express was outlined in a press release issued by ACE Cash Express on January 17, 2002. The ACE press release stated that ACE will refer clients to H&R Block which will offer a $10 discount on tax preparation, and that H&R Block has installed ACE Check Cashing machines in H&R Block offices in 21 states. This arrangement adds the cost of ACE check cashing services to the fees charged for H&R Block refund anticipation loans - a cost that we and others consider exorbitant. (The National Consumer Law Center and Consumer Federation of America report, Tax Preparers Peddle High Priced Tax Refund Loans: Millions Skimmed From the Working Poor and U.S. Treasury (January 2002) found that the rate charged for the ACE check cashing services for tax refunds is up to 4% plus a $3 surcharge.) These check cashing fees are unreasonably high, especially since ACE Cash Express is assuming little risk because the checks cashed by ACE are issued by H&R Block.

Using the average federal refund in 2000 of $1,900, a consumer who chooses to have her taxes completed by H&R Block, receives the $10 discount, and takes a refund anticipation loan will pay a total of at least $139.95. This estimate includes the discounted $65 fee for tax preparation and $74.95 for the refund anticipation loan. If the consumer then chooses to cash her loan check at an ACE Cash Express machine, she will pay an additional $73.40 for a total of $213.35 (this takes into account the $10 discount for tax preparation). If this same consumer had her taxes completed and electronically filed at H&R Block and deposited directly into her bank account, she would still have access to her refund in approximately ten days and even without the $10 discount offered to customers referred by ACE, would still save $138.35.

According to the Kansas City Business Journal, H&R Block and ACE Cash Express have entered into a revenue sharing agreement but the article did not include the details of this agreement. Because of the relationship between ACE and H&R Block, there is no apparent risk that the check might bounce, making the above-market rates for check cashing services, in our view, particularly excessive.

Refund Anticipation Loans and Earned Income Tax Credit

As advocates for all consumers, we find these high charges to be especially egregious since a large number of refund anticipation loan recipients are low-income tax filers. According to NCLC and CFA, forty percent of consumers who get refund anticipation loans receive the Earned Income Tax Credit, the largest federal antipoverty program. The purpose of the Earned Income Tax Credit is to lift low-income working people out of poverty and to reward work. Over half of those who are lifted out of poverty as a result of the EITC are children.

The NCLC and CFA report found that in 2002 about $324 million of EITC dollars will be used to pay refund anticipation loan preparers. This estimate does not include the fee for tax preparation.

Furthermore, this estimate does not include the check cashing fees that might be paid by consumers for check cashing through the ACE partnership. An individual who receives the average EITC check of $1,600 and uses the services at H&R Block will pay an additional $67 to cash her check at the ACE Check Cashing machine. This appears simply to be an opportunity for high fees at the expense of the lowest earning working consumers.

H&R Block states on its website that it is "one of the most enduring and respected brand names in the country." We see no good reason to charge such high fees for a product that carries little or no risk for your company especially to those who participate in the Earned Income Tax Credit program. Nor is there a justification for H&R Block to encourage the use of above-market rate check cashing services from ACE Cash Express, especially when the customer could gain relatively quick access to the refund by filing electronically and having the refund deposited directly into a bank account.

Consumers Union urges you to reform your refund anticipation loan practices to help your customers make sound financial decisions for their families.

Sincerely,

Shelley Curran
Policy Analyst
Consumers Union West Coast Regional Office

View Files Sorted By Office: Consumers Union OPI, New York - Washington DC Office
West Coast Regional Office - Southwest Regional Office - Consumer Policy Institute

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