JPMorgan May Quit Tax-Refund Loans, Helping H&R Block

BusinessWeek
April 28, 2010
Eichenbaum, Peter; Donmoyer, Ryan J.

JPMorgan Chase & Co. reportedly plans to cease making tax refund anticipation loans (RALs) for some 13,000 independent tax preparers, as the product does not mesh with the company's strategic plans. Liberty Tax Service CEO John Hewitt believes JPMorgan is joining other lenders, such as HSBC Holdings PLC and Santa Barbara Bank & Trust, in abandoning RALs because of the risks they pose to company reputation. "The reason HSBC is exiting this industry, even though they're making $100 million a year in profit from it," he declares, "is because of reputation risk. Bankers don't like the consumer advocacy groups picketing outside their offices." JPMorgan's RAL-derived profits are probably an "insignificant contribution" to its bottom line, speculates Stephens Inc. analyst David Burtzlaff. However, RALs "get a lot of bad press," he notes. "The consumer groups hate it. It falls under the same stigma as payday loans and I don't think banks want the attention it brings." Consumer groups have long opposed RALs for high annual interest rates that sometimes top 100 percent, which can worsen debt problems for cash-strapped consumers.
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