H&R Block, HSBC in talks on refund loan funding

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Associated Press

Posted on November 11, 2010 at 11:02 AM

NEW YORK (AP) — H&R Block Inc. on Thursday said it is negotiating with the bank that provides funding for its refund anticipation loan program, even as its lawsuit against the institution goes forward.

The Kansas City, Mo.-based tax preparation company said in a statement that while the suit is pending, it is "engaged in discussions in an attempt to settle the litigation to confirm the availability" of its loans and other products linked to tax refunds.

H&R Block last month sued HSBC Bank USA, claiming the bank was trying to back out of funding the refund loan program. HSBC had not taken the necessary planning steps to ensure the nation's largest tax preparer would be able to offer the loans and accounts known as refund anticipation checks during the 2011 tax season, Block maintained in the suit filed in federal court in St. Louis.

A hearing in the case is scheduled for Monday, H&R Block said.

The issue with HSBC stems from an August announcement by the Internal Revenue Service that it will no longer inform tax prep companies if all of an individual's expected tax refund will be sent. Without such confirmation, called a "debt indicator," there's no way for tax prep companies and the banks that fund their refund loan programs to know if the refund will be reduced by factors like back taxes due, a defaulted federal student loan or unpaid child support.

In essence, the IRS debt indicator acted as a form of credit check for a population that typically doesn't have access to traditional credit. The IRS said it would stop providing the information because it's now able to deliver refunds quickly.

In the lawsuit, H&R Block said HSBC is trying to back out of funding its refund anticipation products because without help from the IRS, the bank fears it will lose money, despite the fact that they have a contract to provide the backing for the loans.

About 40 percent of H&R Block customers used one of these products during the 2010 tax season — accounting for roughly 4 percent of its annual revenue.

In morning trading, H&R Block shares jumped 45 cents, or 3.7 percent, to $12.71.

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