H&R Block is Taxing to Low-Income Families - National Consumer Groups Ally to Protest Bank Charter


H&R Block is Taxing to Low-Income Families - National Consumer Groups Ally to Protest Bank Charter

Contact:  Tom Feltner (312) 427-8070

(October 5, 2005, Chicago, IL)  National consumer rights groups today joined in protest to halt H&R Block’s plans to become a federally chartered savings and loan. The groups condemn the high cost products peddled by H&R Block in low-income communities and communities of color. For example, a consumer going into an H&R Block office for tax advice, who is entitled to a $2,000 tax refund, could end up with a refund anticipation loan (RAL) with an APR of more than 180 percent, costing $100 for a loan lasting less than two weeks. H&R Block brokered more than four million RALs in 2004, earning more than $174 million on them.

The protest comes as the Office of Thrift Supervision (OTS), one of the federal bank regulators, holds a hearing on the plan, which community groups believe would facilitate H&R Block’s gouging of low-income communities.

“H&R Block is proposing a back door entry into banking--continuing to offer a broad array of high cost products to low-income people, while circumventing the requirement of most banks to reinvest in local communities where they conduct business,” said Kevin Stein, associate director of the California Reinvestment Coalition.

Protestors hope the third time is not a charm for H&R Block, which has twice before submitted applications for a bank charter only to withdraw them in light of the serious concerns raised by consumer groups.

“If H&R Block wants to be a bank, it should get out of the business of brokering predatory refund anticipation loans (RALs) to working poor families. A bank should not be steering families into loans that charge APRs of up to 700 percent. It should be providing low cost savings accounts so these families can get their refunds quickly and safely,” stated Chi Chi Wu, a staff attorney for the National Consumer Law Center.

"More than half of H&R Block's mortgage loans to African-Americans in 2004 were over the federally defined subprime rate spread of three percent over Treasury securities on a first lien, five percent on a subordinate lien. This rose to over 70 percent in Missouri, to which H&R Block is trying to confine its CRA responsibilities. The OTS should deny Block's applications," said Matthew Lee, the executive director of Inner City Press/Fair Finance Watch.

H&R Block’s practices are harmful to low-income communities and communities of color. The groups believe that H&R Block should not be granted charter approval unless certain conditions are satisfied to ensure Block’s bank would serve the financial services needs of all its communities:

  • Block must stop brokering triple digit APR Tax Refund Anticipation Loans. These predatory products strip wealth from consumers, especially those with the lowest-incomes who qualify for the federal Earned Income Tax Credit. To add insult to injury, Block not only collects fees for arranging these predatory loans for its clients, but also profits by buying up to a 49 percent stake in the loans. Block must commit to specific and substantial targets to get its “unbanked” customers into low cost savings products so that they can join the financial mainstream and start to build assets.

  • Block’s bank must not circumvent the Community Reinvestment Act. Block’s bank proposes to take deposits and offer bank products nationally through its tax preparation offices, yet reinvest only around its Kansas City home. Block must commit to reinvest in all markets where it engages in significant deposit and lending activity. Block’s plans fly in the face of the goals of the Community Reinvestment Act, which encourages banks to reinvest back into local communities where they are doing business.

  • Block must improve its lending practices. With a federal charter, H&R Block could one day seek to protect Option One Mortgage, its high cost home lender, from state and local consumer protection laws. More than half of H&R Block's mortgage loans to African-Americans in 2004 were more than the new federally defined subprime rate spread. This rose to more than 70 percent in Missouri, to which H&R Block is trying to confine its CRA responsibilities. H&R Block also remains one of the only financial services companies that do not guarantee its customers the lowest cost home loan for which they may qualify. Block has indicated it might move in this direction, though the details are not clear.

  • Block should end all relationships with check cashers and commit in writing to not engage in payday lending. Block currently partners with ACE Check Cashing to place check-cashing machines in its tax prep offices, and has other partnerships with check cashing companies. Banks should not be engaged in such activities, which may open the door to abusive payday lending practices.

Marva Williams, senior vice president of Woodstock Institute said, “Mainstream financial institutions have no place in the financial fringe. H&R Block must cease activities that contribute to the poverty surcharge, such as high-priced check cashing and expensive short-term consumer and mortgage loans. Instead, H&R Block must commit to providing affordable financial services that allow consumers to build wealth and assets.”

This application poses one of the first tests for new Office of Thrift Supervision Director John Reich. It is also one of the first bank applications after the release of new home mortgage data showing significant disparities in the prices paid for home loans by different race and ethnicity groups.

  • Woodstock Institute was established to research, develop, and promote ways to bring economic resources to lower-income and minority families and communities. Woodstock works locally, nationally, and internationally to further this goal. Woodstock’s partners include: community organizations, local and national economic justice coalitions, academics, policy makers, financial institutions, and foundations.

  • California Reinvestment Coalition’s mission is to revitalize California's low-income and minority communities by increasing access to credit and deposit services. Our goals include leveraging the federal Community Reinvestment Act to increase the flow of credit and investments into California's low-income communities and communities of color.

  • Community Reinvestment Association of North Carolina is a nonprofit, nonpartisan research and advocacy organization whose mission is to promote and protect community wealth. We advocate for change in the lending practices of financial institutions to promote wealth building for underserved communities and to end predatory lending practices that strip wealth.

  • Inner City Press/Fair Finance Watch was founded in the South Bronx in 1987. Its members work on issues including equal access to housing, telecommunications, and environmental justice. Through its Fair Finance Watch it advocates against predatory lending at home and even overseas.

  • National Consumer Law Center is a nonprofit organization specializing in consumer issues on behalf of low-income people. NCLC works with thousands of legal services, government, and private attorneys, as well as organizations who represent low-income and elderly individuals on consumer issues.