HR Block ends RALs, but RACs Remain

This week the tax preparation giant, HR Block, announced it will not sell tax loans (RALs). Last year Block did not sell loans because of conflicts with their lending bank, HSBC. This year the decision likely stems from several factors. First and foremost, there is really only bank (Republic Bank and Trust) selling tax loans and they have a hearing about how “safe and secure” the loans are for the bank in February. The initial ruling pointed to them not being very safe or secure. Second, the use of RALs is outdated. The IRS, paid and non-paid tax preparers, and technological changes have made the refund process quicker. RALs were taking up to 5 business days, nearly matching the speed of a regularly filed IRS return. Third, it is an unlikely coincidence that banks and preparers are moving away from RALs after Jackson-Hewitt filed bankruptcy. The Jackson-Hewitt modeled heavily depended on RALs. So Block not entering back into the RAL market is the good news…now on to the bad news.

This doesn’t mean that low- and moderate-income families won’t be pushed at tax time to buy products. The RAL cousin, refund-anticipation checks (RACs), will be widely available at Block and other chains. A RAC is not a loan but rather a check with a refund minus the fees for the preparer and bank. It is less costly than a RAL but also less needed. Anyone with a bank account should shy away from the RAC and use direct deposit into their account. Other products like audit insurance, second looks, charges for state filing, and other “junk” fees can run-up a paid tax preparation bill quickly.

Consumers would be wise to seek free tax preparation through the VITA, Benefit Bank, or other tax clinics if they qualify for the EITC. People that are ineligible for free tax preparation should have a mental and literal checklist of what they are being charged, why, and if it is necessary. 

This news marks progress, but there's still a long way to go before tax time reaches its full potential as an opportunity for all families to save and build assets.