Instant tax refunds on their way out "Some of the worst impulses just simply took over," said Mark Ernst, former deputy IRS commissioner and former chief executive of H&R Block. Although the loans gave many taxpayers faster access to money, federal investigations found the industry fraught with fraud, inaccurate information and murky disclosures. Now, a confluence of new regulations, improved technology and an uproar from consumers are sounding the death knell for the once-lucrative loans. Industry giants such as JPMorgan Chase and H&R Block have stopped offering them, and the market has shrunk to one-third of its size during its heyday. Only one bank is still providing the loans this year - for one last tax season. The concept for tax advance loans emerged in the late 1980s. Personal computers were growing popular, and the IRS planned to modernize its stores of data by digitizing tax returns. To pilot the program, the government turned to tax preparers, who had the resources to invest in technology and training. Ross Longfield, a former executive at Beneficial Corp., now part of HSBC, said his firm tested the service in a few cities. "It was mildly successful, but the bottom line was there was no reason for people to do it," he said. Even though it promised faster refunds, it wasn't that much faster. Anticipating a refund The IRS often took a month or longer to process refunds, and checks were mailed to taxpayers" homes. Longfield said customers reported the money being stolen from their mailboxes. The IRS also tested electronically depositing refunds into bank accounts, but many lower-income taxpayers did not have accounts. The agency had set ambitious goals for electronic filings and encouraged companies to come up with solutions, Longfield said. The ultimate incentive for consumers to file electronically would be a nearly instant tax refund - money they could put in their wallets within a day or two of leaving Beneficial's offices. In 1989, Longfield patented the process for what would become known as the tax advance, or, in industry jargon, refund anticipation loan. Beneficial calculated a customer's estimated refund when it filed his or her tax returns, then issued loans for the same amount, minus fees. When the IRS processed the return, Beneficial took the refund as the payoff for the loan. Longfield said the industry agreed to safeguards to prevent loan sharks from entering the market: Fees could not be calculated as a percentage of the refund, and only regulated banks could make the loans. Longfield said it was banks that got hit when IRS glitches delayed refund payments by weeks.