Tax and finance giant H&R BlockH&R Block has long pined to open a chartered savings bank of its own, and to bring in more income for itself rather than having to share with its banking partners. But a number of consumer advocacy groups are hotly opposing the move.
The opponents say that if Block gets its own bank, it will expand its marketing of high-interest refund anticipation loans (RALs) and "subprime" mortgage loans to new and vulnerable markets.
A coalition of groups, including the National Consumer Law Center (NCLC), the California Reinvestment Coalition, and the Woodstock Institute addressed the Office of Thrift Supervision (OTS) earlier this month, asking it to reject Block's application. The OTS regulates savings banks.
The coalition said that Block has a long history of gouging low-income workers for refund anticipation loans with astounding interest rates.
H&R Block, along with its partner HSBC Finance, recently settled a class action lawsuit that challenged its practice of offering RALs with interest terms starting at 70 percent, and often exceeding 100 percent of the loan amount.
"If H&R; Block wants to be a bank, it should get out of the business of brokering predatory refund anticipation loans to working poor families," NCLC attorney Chi Chi Wu said.
Wu is the author of several NCLC reports on predatory lending and RALs, including a report that documented the Internal Revenue Service's subsidizing of companies that offered RALs to consumers.
According to the report, RALs cost taxpayers almost $2 billion in charges and fees, including check cashing, processing, and preparation fees, in 2003 alone. (Full text; pdf file)
Block planned to open a bank in Kansas City, Mo., where its corporate headquarters is located. The bank would offer "nontraditional" lending services as well as a central depository for clients' funds, the company said.
The plans for the current charter application have not been revealed, as the bank is keeping mum on details pending approval or rejection of the charter by the OTS. The company tried to apply for charters in 2002 and 2003, withdrawing them to "fine-tune" the plans each time, said company spokesman David Gunasegaram.
In previous attempts to file a charter with the OTS, Block claimed that 60 percent of its clients made $30,000 or less a year, making them suitable targets for the "subprime" lending market. Although the proposed Kansas City bank would not offer subprime loans, Block's "Option One" mortgage unit specializes in offering mortgage loans to consumers with "non-prime" credit histories.
Option One is the source of a number of complaints from ConsumerAffairs.com readers, including failure to report mortgage payments, unjustified penalties and fees, and using bullying tactics to get information from borrowers.
The mortgage company recently settled with the U.S. Attorney's Office in Philadelphia, agreeing to prevent predatory lending practices by independent brokers in the greater Pennsylvania area.
H&R Block itself is a frequent target of Refund Anticipation Loans, with complaints directed at the refund anticipation loan program in particular.
As one incensed customer put it, "I am tired of being ripped off by people. We work very hard for our money, and it should not be kept from us."
