You may be let down if you pick your preparer because you want to get an advance on your refund. Many filers apply for loans but are not approved. Some do get an approval, but for less than they had expected.
Because of underwriting rules put in place by the banks who originate these loans, many loan applications result in denials. Others, while accepted, are capped at an amount that might be far less than what the consumer had sought.
The canary in the coal mine is the higher number of people who opt to pay for the slower refund transfer ("RT") service, rather than leave with a free advance. Millions of people will make the choice to pay as much as fifty dollars for the RT, even though it returns proceeds from a refund more slowly than the advance product. For those that have been turned down for an advance loan, the RT is second-best.
Let’s start by reviewing the proverbial playing field:
Filers who get an H&R Block Refund Advance Loan could receive between $500 and $3,000. Proceeds of the advance come from MetaBank. Tax filers can only apply for a loan inside a Block store. B of I Federal Bank, part of the bank holding company that purchased the Emerald Card a few years ago, originates the loan to the tax filer. Not coincidentally, all recipients of a Refund Advance must take the proceeds on an Emerald Card.
Jackson Hewitt’s Express Refund Advance also comes through a relationship with MetaBank. With an Express Refund, a filer could potentially receive an advance of as much as $3,200. Filers can apply for this loan online, but Jackson Hewitt says that a customer who comes into a store may qualify for a higher loan amount.
In addition to the Express Refund Advance, Hewitt also offered a pre-season paystub loan for amounts of either $100 or $200.
Liberty Tax says its Easy Advance can potentially give the highest maximum loan amount of any product this year. Filers can receive an advance of as much as $3,250. Republic Bank & Trust (KY) originates the Easy Advance loans. To qualify for an advance of that much, a filer’s return would have to qualify for a refund (minus fees) of at least $5,095.
Credit Karma, a consumer finance site with a well-known reputation for helping consumers monitor through credit scores, has partnered with MetaBank to offer the Early Bird Advance. Proceeds can be for $500, $750, and $1,000.
TaxSlayer’s RefundNow provides a refund of up to $1,000 in two days or less.
Pay Attention to Refund Transfers
In an earlier blog post, I talked about what it could mean that so many people were opting to use a refund transfer. If you think about it, a refund transfer should not be as attractive as a tax refund advance loan. The RT costs money, whereas the advance loans do not. The RT returns proceeds from a refund only after the return has been approved by the IRS, whereas filers who receive a refund advance may receive a portion of their expected refund in less than two days. RTs are a vehicle to allow a filer to delay paying the price for tax preparation services out-of-pocket.
In a corporate filing, the investor relations department at Liberty Tax reported that “a substantial portion of our prospective customer base places significant value on the ability to monetize their expected income tax refund more quickly than they would be able to do if they were to file their tax return without utilizing the services of a paid tax preparer.” In any given year, more than three-quarters of their in-store customers are likely to apply for some financial product.
Given the attraction of a loan relative to the refund transfer for this customer segment, it stands to reason that few would ask for an RT. The same dynamic should be seen at Block and Jackson Hewitt as well. Block has tried to broaden its customer base with investments in services like Block Advisors, so their financial product usages rates should be lower. However, Jackson Hewitt's probably followed more closely to the pattern at Liberty.
In 2017, 47.6 percent of Liberty Tax customers received a refund transfer. Liberty's RTs cost $49.95 at Liberty.