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H&R Block Readies New Bank as Business Soars

Lawsuits and Consumer Challenges Do Little to Slow the Momentum

March 30, 2006

H&R Block • Charges • Electronic Filing • Errors • "Free" Filing • Online • Refund Anticipation Loans • Option One Mortgage Corp. -- News • New York Stops H&R Block's Deceptive Sweepstakes Ads • California Sues H&R Block • H&R Block Sells Subprime Mortgage Unit • H&R Block Launching Its Bank • H&R Block Threatened Employees, Spitzer Charges • H&R Block Settles Tax Refund Loan Suit • H&R Block Readies New Bank as Business Soars • NY Accuses H&R Block of IRA Marketing Fraud • H&R Block Goofs on Its Own Taxes • Children's Defense Fund: Tax Refund Loans "Indefensible" • California Sues H&R Block Over Its "Instant Refund" Loans • H&R Block Doesn't Block Identity Theft • H&R Block Will Settle More Payday Loan Suits • Option One Agrees to Clean Up Its Lending Practices in PA • H&R Blocked: Consumer Groups Oppose Tax Giant's Proposed Bank • Tentative Settlement in Tax Loan Class Action • Class Action Challenges Electronic Filing Fee • Supreme Court Rejects Block Appeal in Class Action • Judge Upholds Racketeering Complaints Against H&R Block, Household • Court Clears Class-Action Suit • Tax Loans Victimize Consumers --- • All About HSBC

Despite a barrage of lawsuits and opposition to its plans to open its own bank, business is pretty good at H&R Block Inc., the nation's largest tax return preparer. The company said today it has seen a 7.9 percent increase in tax preparation fees this season, driven by an increase in customers.

The company said the number of clients it has served was up 8.6 percent from March 1 to March 15, over the same period last year.

H&R Block Bank was granted a charter by federal regulators earlier this month, about the same time that New York Attorney General Eliot Spitzer filed a lawsuit charging that the company had defrauded hundreds of thousands of its customers by selling them IRAs that were "virtually guaranteed to lose money."

California Attorney General Bill Lockyer, meanwhile, has sued the company over the marketing of "instant" tax refunds, which he said were loans with annual interest rates that "could be in excess of 500 percent." Lockyer also asserted that some instant refunds were not issued any faster than a refund from an electronically filed return.

Citing Spitzer's charges, two New York consumer groups, The Neighborhood Economic Development Advocacy Project and the Inner City Press/Fair Finance Watch, are trying to block the bank's launch, noting a condition in the charter that states that "additional information having a material adverse bearing on any feature of the application" could block approval.

The company issued a strong defense of its IRA program.

"At a time when the country's personal savings rate has declined to minus 0.7 percent, we've helped 596,000 of our clients begin saving for their future, and more than 40 percent of them had never saved before," said H&R Block Chairman and CEO Mark A. Ernst. "Currently, our Express IRA savers have accumulated more than $360 million in their accounts plus Saver's Credit tax benefits of over $50 million. That's a powerful first step toward ensuring a secure financial future."

Ernst said the company will "fight vigorously" to defend itself against Spitzer's charges. Spitzer, who is running for Governor, said Ernst's comments make it "very difficult for me to imagine that we will settle" the case out of court.

Adding fuel to the IRA skirmish, class action lawsuits are being filed on behalf of Block's IRA customers. The latest was filed today in the U.S. District Court for the Eastern District of Missouri, alleging the company's hidden fees and charges made it almost impossible for customers to see any significant appreciation in their IRA accounts.

The Bank

The federal savings bank charter was granted March 15 by the Office of Thrift Supervision (OTS), allowing Block to provide banking products and services through its subsidiary, the H&R Block Bank. H&R Block received approval of its deposit insurance application from the Federal Deposit Insurance Corp. (FDIC) last year.

"Offering banking services extends and strengthens the H&R Block brand and can benefit our clients who have limited access to basic banking and savings services," said Mark A. Ernst, H&R Block's chairman and chief executive officer. "The H&R Block Bank will be instrumental in differentiating our services and reducing our dependence on third parties who currently fulfill our banking needs."

The bank, headquartered in Kansas city, Mo., will provide traditional banking products including checking, savings, certificate of deposit accounts and IRAs, as well as direct deposit, debit card and stored-value card services. The bank also plans to offer loan products such as fixed-rate and adjustable-rate mortgage loans.

"The H&R Block Bank will offer essential banking products and services that are simple and affordable," said Kathy Barney, H&R Block Bank's president and chief executive officer. "We look forward to further helping our clients achieve their financial goals."

The company said H&R Block Bank will serve clients through a variety of channels, including ATM networks, the Internet, telephone banking and a customer service call center. Operations are expected to begin by the end of April.

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