H&R Block will pay $360 million to settle a class action lawsuit over its tax-refund loans, under the terms of a proposed settlement. The company says the settlement gives it a green light to continue the practice in the future.
Block and its partner, HSBC Financial Services, were accused of gouging consumers who took out refund anticipation loans at interest rates frequently exceeding 100 percent.
The settlement covers 28 million customers who made more than 55 million transactions with the company. It would consist of $110 million in cash and $250 million in coupons which consumers could redeem for $6 worth of tax-preparation services.
Class members will also receive cash after plaintiffs' attorney fees are awarded by the judge, with the amount dependent on how many class members file a claim.
H&R; Block said the settlement would also create a "safe harbor" allowing Block and HSBC, which financed the loans, to continue to sell the products.
"It really puts this whole issue behind us," company spokeswoman Linda McDougall said.
The proposed settlement must be approved by U.S. District Judge Elaine E. Bucklo in Chicago. Bucklo rejected an earlier proposed settlement in 2003.
Under the refund anticipation loan program, customers who owed a tax refund could receive most of the money in two to three business days by paying a fee to file the return electronically and a loan processing fee.
According to a report released in January 2005 by the Consumer Federation of America (CFA) and the National Consumer Law Center (NCLC), consumers paid more than $1.4 billion in loan charges and fees in 2003 associated with RALs. These short-term loan terms reportedly had annual interest rates of 70 percent to more than 1,700 percent.
