H&R Block to disclose more on tax-refund loans

H&R Block Inc. (NYSE:HRB - news), trying to distance itself from accusations it overcharges customers, on Tuesday said it will disclose more about tax-refund loans, and warn clients who have debt that might affect the loan process.? The changes concern refund-anticipation loans, which are short-term cash advances by the tax-return preparer to clients who expect refunds.? In September, H&R Block said it will slash fees on typical refund loans by more than 40 percent. Kansas City, Missouri-based H&R Block offers the loans through a partnership with a U.S. unit of Britain’s HSBC Holdings Plc (HSBA.L)

(NYSE:HBC - news).

Under the new process, borrowers will receive a chart showing filing options, fees and the time it takes to obtain refunds.? H&R Block will also notify prospective borrowers if they have outstanding fees from tax preparation or prior refund loans that might affect lending decisions.? Mark Ernst, H&R Block’s chief executive, in a statement said the changes are intended to make H&R Block’s disclosure policies industry-leading. Spokeswoman Linda McDougall said the changes were “not inspired by litigation.”

A copy of the new disclosures was not immediately available.

Refund loans are typically extended for less than two weeks, and many go to poor customers. Their fees result in high effective annualized interest rates that can reach three digits.? On August 28, U.S. District Judge Elaine Bucklo in Chicago approved a $39 million settlement to end an eight-year-old class-action lawsuit against H&R Block over the loans.? California Attorney General Bill Lockyer in February accused H&R Block in a separate lawsuit of overcharging borrowers.? Under its new fee schedule, H&R Block said a typical $2,800 refund loan might cost as little as $60, equating to a 36 percent annual interest rate, if customers open H&R Block bank accounts and arrange for refunds to be deposited directly into them.

The company has said it hopes to open 1 million bank accounts by April.? H&R Block also faces a lawsuit by New York Attorney General Eliot Spitzer over what he calls excessive fees on its Express IRA retirement accounts.

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How Credit Scores Affect Mortgage Applications

With a good credit score an applicant will receive prompt response from many lenders, all of them offering low interest rates and low down payment options. The loan amount offered also may be high. On the contrary a low credit score would result in a lot of rejection from various mortgage financers. Because creditors wouldn’t come forward easily to give credit to individuals that have a history of difficulty in repaying existing loans. After all, creditors take risk when they finance mortgages against the credit history of a debtor. Naturally, they will wish to remain on the safe side and pick up less risky ones that have good credit histories. A good credit score means less chance of missing on payments and therefore less risky.

But there are some real risk takers that will come forward to finance mortgages for individuals with bad credit scores. They would charge high down payments and always high interest rates though. They may also fix additional charges for every little paper work and may charge high closing rates. The loan amount offered will also be considerably less. The individual with poor credit scores will not have much choice but to accept the terms and conditions as there are no other alternatives. This is a tight situation and to avoid this you must have a good credit score.

People with bad credit may fall in to the trap of ’secured loans’. Secured loans are the ones where the loan applicant offers an asset as collateral security. The lender becomes secure about the repayment of the loan and not the borrower. Securing a loan with bad credit score becomes easy only when the applicant is willing to offer some asset as collateral security. This again is a very dangerous situation where an individual runs the risk of losing his entire collateral asset in case of failing to pay the loan installments in time. An individual should always avoid such type of a loan.

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