Tax chains try sweeter pitch: no-fee loans

The nation’s big tax-preparation companies are so desperate for customers that they are willing to put money up front — with absolutely no hidden fees or interest charges, and no ironclad guarantees that the companies will be paid back.

H&R Block, for one, has arranged a $1.65 billion funding line for its refund advances, giving pause to some of the Wall Street analysts who follow the company.

The other is a series of regulatory moves that clamped down on refund anticipation loans, which the companies formerly relied on to lure in people who needed cash.

The loans typically came with high interest rates and fees, which customers paid on top of the money charged for tax preparation.

Customers who qualify will be advanced a portion of their tax refund within a day or so, with no fees or interest, though they will still need to pay for the provider’s tax preparation services, which can cost hundreds of dollars.

Struggling tax companies acknowledge that they are using the loans as a come-on to make up for the loss of walk-in traffic and people who have migrated to TurboTax and its alternatives.

The loan offers are open to all customers, but they are particularly aimed at low-income Americans who live paycheck to paycheck and rely on their tax refund as their biggest annual cash infusion.

For many people, it is a critical way to pay off holiday debt, catch up on overdue bills or cover emergency expenses like car repairs.

In 2002, at the product’s peak, nearly 13 million customers paid more than $1 billion in fees for refund loans, according to data compiled by the National Consumer Law Center.

In late 2010, the Office of the Comptroller of the Currency ordered H&R Block’s lender, HSBC, to quit making refund loans.

On top of the lost income from those lucrative fees, they found that without the offer of refund advances, many customers stopped coming in at all.

A tax refund is a commodity, he concluded, and to stand out from the crowd, Jackson Hewitt, which has 3,000 of its 6,000 stores within Walmart stores, would need to offer things the competition did not — like refund advances.

“We are looking to do a lot of loans to a lot of people, and we will be marketing this aggressively,” Bill Cobb, H&R Block’s chief executive, told analysts on a call.

For some customers, H&R Block offers a credit line of up to $1,000 on those cards — for a $45 annual fee, at a 36 percent annual interest rate.

If a customer’s refund is smaller than the amount that has been advanced, or is garnisheed by the IRS, the lender will be required to write the loan balance off as a loss.

Consumer advocates are keeping a wary watch on this new incarnation of refund loans.

A “mystery shopper” study done last year by Georgia Watch, a consumer advocacy group, found that the prices quoted to prepare a return for a low-income single mother at local stores, including independent shops and chains, ranged from $125 to $457.