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Mark Winston Griffith

Victory! HSBC Quits Predatory Paystub Loan Business

Who says I never have good news to report in my blogs?

Last week, HSBC, one of the largest makers of "holiday" and "paystub" loans, announced that it would cease making these two particularly noxious and abusively expensive forms of short term loans peddled through tax preparation companies. H&R Block and Jackson Hewitt are among the tax preparation companies that essentially served as brokers for HSBC holiday and paystub loans. (See NEDAP's Alert on New Pay Stub/Holiday Loans for some background on what makes these loans so noxious)

A press release issued by the Neighborhood Economic Development Advocacy Project (NEDAP), Chicago's Woodstock Institute, the California Reinvestment Coalition (CRC) and the Community Reinvestment Association of North Carolina (CRA-NC) described these loans this way:

"Paystub and holiday loans carry double- and triple-digit interest rates. Available as early as November, they are made based on people's projected tax refund and Earned Income Tax Credits (EITC), using their paystubs. The loans are intended to hook taxpayers into coming back to the tax preparer to get their taxes done during tax season. At that time, it is generally expected that borrowers will repay their paystub and holiday loans by taking out a second high-cost loan, known as a tax refund anticipation loan (RAL). Unlike paystub/holiday loans, RALs are secured loans, made against the borrower's expected tax refund and EITC."

Although HSBC has discontinued these two products, it remains one of the largest makers of RALs. Also, it is not clear whether the tax prep companies who fronted these loans will simply go to other bank sources for these products.

But for now, let's just savor the moment. Perhaps the most exciting aspect of this news is that the vigorous advocacy of organizations from across the country helped make this happen. The focus now is to not only get the other two giants in this field - JPMorgan Chase and Santa Barbara Bank and Trust - to drop these loans from their product menus, but to force these banks and all the big tax prep companies to get out of the tax-time loan business altogether.

(For an update on RALs and the damage they've done in New York, see NEDAP's Tax Refund Anticipation Loans in New York.)

Mark Winston Griffith: Author Bio | Other Posts
Posted at 8:30 AM, Mar 23, 2007 in Economic Opportunity
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