Mark Winston Griffith

Mark Ersnt of H & R Block: Liar, Liar

The scene was H & R Block's annual shareholders' meeting held earlier this year. Facing criticism about some of his company's predatory lending practices, Mark Ernst, chief executive of H & R Block, promised to start cleaning up his act. A few months prior to that he criticized his competitors for marketing a particularly immoral loan product, claiming that somehow Block was above all this.

Yeah, right.

This Thursday the Kansas City Star reported that Block was going to join Jackson Hewitt, Liberty Tax Services, JP Morgan Chase and other tax preparers and banks in marketing and issuing pay-stub refund anticipation loans (RALs), the same product Ernst denounced in a conference call with analysts as having "more in common with payday lending than refund lending."

Refund Anticipation Loans are high interest, short term loans - deceptively marketed at one time by Block as "Rapid Refunds" - that are secured and paid for by a tax payer's tax refund. Pay-stub loans are the grotesque spawn of this product. Unlike a conventional RAL, which is calculated using a tax payer's W-2 form and is issued a couple of weeks before the tax payer is scheduled to recieve his or her refund, the pay-stub variation is unleashed before or around the new year and is based on a person's pay-stub. Various reports, including one conducted by NEDAP, document how these products are targeted at low-income people communities and disproportionately find their way into the hands of EITC recipients.

In that same conference call with analysts Ernst had the nerve to say this: "The association of these high-cost pay-stub loans with tax preparation generally is not good for consumers and clearly takes the professional tax services industry into a direction that we should all wish to avoid."

So what gives? Ernst has rationalized his decision to peddle pay stub loans by claiming if Block doesn't do it, it will lose market share, which is sort of like the pharmaceutical company Merck saying that if it doesn't sell crack, someone else will. Block claims that it is actually serving to reform the RAL market by offering pay stub and RAL loans that are cheaper than Jackson Hewitt's.

In response to this line of thinking, my colleague Peter Skillern, the executive director of the Community Reinvestment Association of North Carolina said it best: "Rather than try to dress up this pig and have the best-dressed and best-acting pig in the market, we need to get refund-anticipation loans out of the market altogether."

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Posted at 7:20 AM, Nov 10, 2006 in
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