Does the date January 31st strike fear into your heart? For most Americans, the answer would be no. However, January 31st marks the last day employers can send out W-2s to their employees, meaning Tax Season has begun in earnest for you and your members. It’s a special time of year when we all dig out receipts, shudder at mountains of paperwork, question whether we can count that lunch date as a business expense, and promise to be more fastidious about our records next year. This joyous occasion often leaves many thinking, ‘There must be a better way!’ In the past, this has meant turning to tax preparation services for solutions.
It’s no secret that H&R Block is synonymous with tax season. Since their beginnings in 1955 they have filed an estimated 400 million tax returns. You’re probably already aware of the new H&R Block Bank, which reached its one-millionth member earlier this month and is targeting the unbanked demographic. Now a new campaign to promote H&R Block’s services, featuring the slogan “You Got People”, is causing controversy. Allegations ranging from poor member service to borderline predatory lending practices cause some to question the new “got people” claim. It also presents a chance to examine H&R Block’s new tax season strategy and what credit unions can learn from it.
Now Taking 40% Less of Your Money!
According to the National Consumer Law Center, more than 12 million taxpayers took out Refund Anticipation Loans (RALs) in 2004, with an average effective annual interest rate of 178%. H&R Block has been sued in states including California and New York for RALs with even higher interest rates. However, 2007 is a new year. What are they offering the unbanked this tax season? They are encouraging people to get their RAL on a prepaid card tied to a bank account at the H&R Block Bank. They say this means that an RAL will cost 40% less this year than last for the customer. However, the unbanked RAL users are those who are shortest on cash and cannot afford even 40% lower rates on loans.
What Credit Unions Can Promote to Help the Unbanked During Tax Season
- Provide a convenient low-cost solution: Like H&R Block bank is now doing, offer free accounts to clients that direct deposit their income tax refund. Offer bill pay, no overdraft fees, no minimum balance, and link the account to a pre-paid card.
- Refund Lending: If you choose to offer RALs, make it clear how much less your fees are compared to banks or the Block. This should encourage people to turn to you as the only source for an RAL if they truly need one. They’ll get the best value and establish a relationship with a financial institution that can support them.
- Financial Education: Credit unions do a lot to educate members including holding seminars and partnering with Leagues and community outreach organizations to provide tax preparation services. The unbanked usually need the most help with their finances and can benefit most from what credit unions offer. The key this tax season is to make your educational outreach more visible through measures like advertising on your website, sending press releases to the local media, and getting volunteers out in the community.
By focusing on the three key credit union strengths above, this tax season credit unions have the potential to serve those who need their help the most and also prove that we’ve always had people.
To learn how some credit unions are already turning the tax season into an opportunity for balance sheet growth, as well as member growth and education, view our archived webinar, “Using Tax Season to Build Lasting Relationships," brought to you by Callahan & Associates.