Consumer Confidential: Why is Trump's consumer protection agency helping to promote H&R Block's credit card?

David Lazarus, Los Angeles Times on

Published in Business News

Mulvaney began his tenure with an open display of cocksure philistinism, taking potshots at Warren at a conference of appreciative credit union executives. "I am the acting director of the CFPB," he said, "something that's apparently keeping Elizabeth Warren up late at night, which doesn't bother me at all."

It wasn't just rhetoric. Mulvaney suspended a regulation, five years in the making, aimed at preventing payday lenders and other profiteers from low-income borrowers from lending to customers who can't repay the loans, running up fees on customers, and engaging in other abuses. He abruptly withdrew, without explanation, a federal lawsuit against four allegedly abusive installment lenders. And he closed an investigation into World Acceptance Corp., a payday lender in his home state of South Carolina that had been accused of abusive practices, but had contributed at least $4,500 to Mulvaney's congressional campaigns.

In an email to CFPB staff, he drew a sharp distinction between his viewpoint and that of Cordray, who took his job as a regulator seriously. In his talk to the financial executives, Mulvaney implied that Cordray had "abused" his authority by taking an overly aggressive stance on regulation.

Kraninger has continued Mulvaney's policy, as my colleague David Lazarus has assiduously documented. She has done so overtly -- by proposing to roll back Obama administration rules governing the practices of payday lenders and other financial firms -- and subtly -- by placing consumer education in the forefront of the agency's mission, ahead of regulation and enforcement. Under Cordray, the CFPB's number-one priority was enforcement, which placed boundaries around its relationships with businesses. The shift in focus disconcerts consumer advocates, who are in favor of better financial education, but not at the expense of oversight.

"Financial education isn't going to stop a company from misapplying your mortgage payment or the wrongful repossession of a car," observes Linda Jun, a senior policy counsel at Americans for Financial Reform. "The financial crisis wasn't about people suddenly forgetting how to save. That was a very minor aspect of what happened. There were these bad actors that preyed on people with deceptive fees and unfair practices and discrimination. The point of having a financial regulator that protects consumers is to bring these shady behaviors to an end."

That brings us to the question of whether H&R Block is an appropriate partner for the CFPB at any level. The firm, of course, is best known as an operator of storefront tax preparers and for its tax-preparation software. It will be recalled that Block and its chief competitor, Intuit -- the maker of TurboTax software -- were both sued in May by Los Angeles City Atty. Mike Feuer for allegedly conniving to discourage millions of taxpayers from taking advantage of a free, simple online tax filing system provided by the Internal Revenue Service and steering them to their own (fee-based) services. The case is pending in Los Angeles County Superior Court.

What about Block's prepaid credit card, a Mastercard dubbed the Emerald Card? Prepaid cards typically are peddled to lower-income customers who can't obtain conventional credit cards. Conventional cards are unsecured, meaning that holders don't have to put up collateral. Prepaid cards are linked to a bank account with a balance, which serves as the limit of the holder's credit. When Block encourages customers to direct-deposit their refunds onto the card, it's basically offering them credit up to the sum of their refunds plus any other money they have on deposit with Block. (The card is technically issued by Axos Bank, an internet bank headquartered in San Diego.)

What does H&R Block get out of this? On the face of it, fees, and plenty of them. Block tells customers that the card has "no setup fee, no annual fee and no fee for purchases." Mmm ... that's not the whole story. According to the card's fee schedule, holding the Emerald Card can run into money. For example, it will cost you up to $4.95 every time you reload your card balance at a retail store such as Walmart, not including fees the retailer may impose; if you reload by check, it will cost up to 4% of the check amount, with a minimum of $2. (If you deposit a $25 check to reload your card, that fee amounts to 8%. Just saying.)

Using the card to make a withdrawal from an ATM: $3 each time, plus any fee that the ATM owner charges. Withdrawing money from your card at a bank will cost you $35. Notwithstanding what Block says about no annual fee, there's an "inactivity fee": If you haven't used your card for 60 days, Block will drain it of $4.95 per month. And if you lose your card or it's stolen, a replacement will cost you $35, because as everybody knows, it costs the card issuer $35 to punch out a piece of plastic and put it in the mail.

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It's conceivable that these fees are routine for prepaid credit cards. That's not to excuse Block, but to point out that for many users prepaid cards are a costly convenience. The CFPB should be casting a gimlet eye on this financial product, including whether its fees are fair and fairly applied, not bragging that it's partnered with a card issue on a study that has found unspecified benefits from a financial instrument bristling with fees that consumers may not all understand. Kraninger's remarks signal that her agency is fine with the card. If that's not so and the CFPB doesn't wish to be associated with it, she needs to say so, now.

As Jun notes, "H&R Block's goals don't seem to align with the CFPB's." At least, they didn't used to.

About The Writer

David Lazarus, a Los Angeles Times columnist, writes on consumer issues. He can be reached at

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