NEW YORK (Reuters) — HSBC Finance Corp. said yesterday it will stop making some tax refund loans in the wake of pressure from critics of the controversial products, which let taxpayers who expect refunds get cash early, at a high cost.The move by the HSBC Holdings Plc unit affects short-term “pre-season” and “pre-file” loans made from November to mid-January based on documentation of customers’ earnings, HSBC Finance spokeswoman Diane Bergan said.

Such loans typically carry fees equating to effective annual interest rates of 40 percent to 60 percent, and which are disclosed up front, she added. Loans made during the main tax season are not affected, she said.

Tax refund loans, also known as refund anticipation loans, are cash advances, typically for a few days or weeks, to tide over clients who expect refunds.

Regulators and consumer advocates have long criticised the loans, which can carry effective interest rates that often top 100 percent.

They say the loans in particular burden lower-income people who commonly use but can least afford them.

Brendan McDonagh, HSBC Finance’s chief executive, in a statement said his company has been “in discussions with key consumer advocates and public officials” over lending practices.

Tax preparers such as H&R Block Inc. and Jackson Hewitt Tax Service Inc. offer tax refund loans to clients with financing provided by Prospect Heights, Illinois-based HSBC Finance, which was once known as Household International Inc.

H&R Block spokesman Dan Smith said the largest US tax preparer supported HSBC’s decision, and will continue to offer “responsible” refund loans, including with HSBC.

In October, Kansas City, Missouri-based H&R Block said it would slash fees on typical refund loans by more than 40 percent, and improve disclosures to customers.

Two months earlier, a federal judge in Chicago approved a $39 million settlement to end a class-action lawsuit against H&R Block over refund loans it offered with HSBC.

In Feb. 2006, California Attorney General Bill Lockyer sued H&R Block for overcharging thousands of poor customers for the loans. Jerry Brown has succeeded Lockyer as attorney general.

HSBC Finance is also the second-largest US subprime mortgage lender. Subprime weakness helped push North American bad debts at its British parent up 38 percent last year, limiting the profit increase at Europe’s largest bank to five percent.

Bergan said the subprime losses are unrelated to the pullback on refund loans.

“We made a determination that this is what’s best for our business,” she said.