H&R Block Inc. said an “11th-hour” decision by U.S. regulators prevents a lending partner from offering tax-refund loans and that it’ll be hard to fully roll out alternative products in time for the 2011 season.

The Office of the Comptroller of the Currency told HSBC Holdings Plc not to make refund-anticipation loans, called RALs, prompting the bank to end an exclusive contract with H&R Block three years early, the tax preparer said in a statement after business hours on Dec. 24. The directive scuttled a deal the two firms reached after H&R Block filed a lawsuit to force HSBC to offer the loans, according to the statement.

“The OCC’s 11th-hour timing will make it difficult for us to put alternative products in place at all of our locations in time for the early part of the 2011 tax season,” Chief Executive Officer Alan Bennett said in the statement. “Millions of taxpayers will be deprived of credit, or they will be forced to use higher-priced alternatives.”

The U.S. Internal Revenue Service said in August it will no longer help banks, including HSBC and Republic Bancorp Inc., underwrite RALs, which consumer groups say carry unfairly high interest rates. H&R Block’s struggle to make loans available in 2011 has helped drive down its shares 44 percent this year through last week, making it the second-worst performer in the Standard & Poor’s 500 Index.

The firm will still offer customers a way to speed checks and is developing “other financial products we intend to put in place by the early part of the tax season,” said Kate O’Neill Rauber, a spokeswoman for the Kansas City, Missouri-based company. “We have no doubt that our 11,000 retail tax offices will be ready to serve any taxpayer that needs assistance.”

Ending Relationship

H&R Block learned of the OCC’s directive on Dec. 23, she said. The stock closed at $12.69 that day. Only Dean Foods Co. has fallen more in the S&P index this year.

HSBC spokesman Rob Sherman said the bank is terminating its relationship with H&R Block after the OCC’s decision. Spokesmen for the agency didn’t respond to messages over the weekend.

Tax firms such as H&R Block, Liberty Tax Service and Jackson Hewitt Tax Service Inc. advertise RALSs as a way to get immediate cash. The IRS has said it will withhold a digital indicator that tells banks when taxpayers qualify for refunds claimed on their tax forms and that a deposit is imminent.

Jackson Hewitt, the second-biggest U.S. tax preparer, said Dec. 10 that it expects to provide RALs nationwide in 2011 through agreements with Republic, based in Louisville, Kentucky, and Santa Barbara Tax Products Group. Parsippany, New Jersey- based Jackson Hewitt plunged 23 percent on Christmas Eve last year after the OCC told Pacific Capital Bancorp that it wouldn’t be allowed to originate RALs in 2010.

October Lawsuit

H&R Block sued HSBC in October as the London-based bank sought to exit the U.S. RAL business. The two companies had since reached an agreement for the 2011 season, under which H&R Block would have essentially covered defaults, according to its statement. The tax preparer also agreed to fund instant loans at a “substantially reduced rate to consumers,” it said.

Standard & Poor’s, citing H&R Block’s negotiations with HSBC, said in a Dec. 22 report that it was less likely to cut H&R Block’s credit rating. The company’s “possible inability to offer RALs, its most prominent settlement product, may hurt revenue and earnings for the 2011 tax season,” wrote Rian Pressman, an S&P analyst.