JPMorgan Chase & Co will no longer offer independent U.S. tax preparers financing for tax-refund loans, a company spokesman said.
The move by the second-largest U.S. bank follows recent criticism of such loans by consumer groups concerned that high U.S. unemployment is forcing more people to borrow short-term at high rates.
JPMorgan's tax-refund financing business is not strategically important, the spokesman said, and the move will not have a material impact on its earnings.
The New York-based bank's exit from the business could be a boon for companies like H&R Block , which receive financing for refund loans from HSBC Holdings . The move could help H&R Block attract customers away from independent tax preparers next year.
For tax season 2011, we will continue to offer a best-in-class RAL product, H&R Block representative Gene King said in an email to Reuters.
H&R Block provides tax return preparation services in person, and online through its H&R Block at Home software, formerly known as TaxCut, which competes with bigger tax software rival Intuit Inc's TurboTax.
This news significantly weakens the majority of H&R Block's professional tax preparation peers and likely triggers them to consider franchising with it, Oppenheimer & Co analyst Scott Scheeberger said in a note to clients.
Scheeberger noted that apart from HSBC Holdings PLC , which has an agreement with H&R Block, only Republic Bancorp Inc originates RALs.
Following JPMorgan's move, Republic may also be pressured to depart the RAL business, which would further H&R Block's competitive advantage, the analyst added.
H&R Block said in January HSBC Bank USA NA agreed to provide funding to one of its units, enabling it to buy participation interests in refund anticipation loans. Jackson Hewitt Tax Service Inc , H&R Block's main rival, said earlier this year it could not secure a source for refund anticipation loans for this year's tax season, as the bank that originated those loans, a unit of Pacific Capital Bancorp , terminated its contract.
Tax-refund loans, also known as refund anticipation loans, typically last seven to 14 days until taxpayers receive their refunds from the U.S. Internal Revenue Service.
The effective annual percentage rate for such loans can range from about 50 percent to 500 percent, depending on the size of the loan, according a February report by the National Consumer Law Center and Consumer Federation of America.
The report said about 8.4 million U.S. taxpayers used this type of loan in 2008, according to the most recent data available.
About 65 JPMorgan employees in Columbus, Ohio, will be affected by the bank's decision, the spokesman said. The bank hopes to find jobs elsewhere in the company for some of them, he added.
JPMorgan shares were up 1.2 percent at $44, while those of H&R Block were up 2.5 percent at $18.81 in afternoon trade Thursday on the New York Stock Exchange.
(Reporting by Elinor Comlay in New York and Anurag Kotoky in Bangalore; Editing by Mike Miller and Gopakumar Warrier)