This section provides basic information on the RAL activity of key industry players, an overview that we provide annually in our RAL reports. We discuss certain other topics affecting these players, such as regulatory measures, law enforcement actions, and other events, in other parts of this report.
Historically, the RAL industry was made up of a handful of RAL lending banks, three commercial preparation chains, and thousands of independent preparers that offered and arranged for RALs. The loans were made by banks because of the banks’ ability to avoid state interest rate caps and because IRS rules prohibit the tax preparer from being the RAL lender.
H&R Block is the nation’s largest tax preparation chain, accounting for 15.6% of all individual tax returns in 2010. H&R Block stated that for 2010 “[w]e prepared 20.1 million U.S. returns [including software/online returns] in fiscal year 2010, and of those clients 16.8% also purchased a RAL.” Thus, H&R Block appears to have made 3.4 million RALs in 2010, which is an increase of 15% from the 2.95 million RALs it made in 2009.
If the customer secures the line of credit with a deposit in an Emerald savings account, the interest rate is reduced to 9%
Previously, H&R Block also earned fees from RALs through its arrangement to have H&R Block Financial Corporation buy a 49.9% interest in RALs arranged by its tax preparation offices. In 2010, H&R Block earned $146.2 million in this type of revenue, constituting about 4.9% of tax services revenue.
In 2011, H&R Block did not have the ability to offer RALs because its bank partner, HSBC, was ordered by the OCC to stop making RALs. Despite the lack of RALs, H&R Block did not experience a decrease in customers, and in fact gained 3.6% more customers in its retail stores. Block announced in that it would not seek a new RAL lending bank for the 2012 tax season.
The Emerald Card also allows customers to access the Emerald Advance Line of Credit, which is a pre-season or “pay stub” product that provides loans of up to $1,000
H&R Block offers the Emerald Card, a prepaid debit card, to its tax preparation customers. H&R Block had about 2.5 million Emerald Cards users in 2010, and 2.3 million in 2011.
The Emerald Advance carries an annual fee of $45 for the first year with an interest rate of 36%. Thus, for a $500 advance repaid in one month, the total fee would $60. A one month, closed-end loan with the same loan amount and fee would have an APR of 158%, if the annual fee were to be included in the finance charge (which Truth in Lending does not require). For returning customers, the annual fee is lowered to $30 for the next year. H&R Block earned about $78 million in interest from its Emerald Advance line of credit in 2010. It earned about $94 million in interest from Emerald Advances in 2011.
Even though Block itself did not offer RALs in 2011 or 2012, one of the companies that Block owns did offer a tax-time loan in 2012. TaxWorks, a division of RedGear, which is owned by Block, is promoting a “Tax Season Cash Advance” provided by Schear Lending Group and Atlas Financial Services. As discussed in Section II.F below, Schear Lending Group appears to be affiliated with Ohio-based payday lenders.
Jackson Hewitt is the second largest tax preparation chain in the country, preparing 2.53 million returns in 2010, or about a 3% share of the paid preparer market. This is a decline of about 15% from the 2.96 million returns that it online payday OH prepared in 2009.
