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H&R Block Settles Tax Refund Loan Suit

Still Faces Major Challenge by California

April 21, 2006

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Tax preparation giant H&R Block has proposed a $39 million settlement to a consumer class action lawsuit challenging the fees and interest rates on it charged for "refund anticipation loans," (RALs). The company still faces legal action by the state of California.

The class action, filed on behalf of as many as 1.7 million H&R Block customers, contended that Block charged interest rates of more than 100 percent on refund loans and failed to properly inform customers of the finance charges they were paying. It was filed in Chicago in 1998.

Refund anticipation loans are presented to taxpayers as a quick way of getting their refunds. But often undisclosed are the extremely high interest rates, the fees charged by the banks involved in the process and the possibility of delays that can make the RALs no faster than refunds that come directly from the IRS.

California Attorney General Bill Lockyer sued Block in February alleging the tax preparation giant has violated 15 state and federal laws in marketing and providing RALs in California, mainly to low-income families. Damages could total "hundreds of millions" of dollars, Lockyer said.

The Children's Defense Fund has estimated that low-income Americans paid more than $900 million in unnecessary fees and excessive interest when they filed their taxes in 2004 to expedite collection of their tax refunds. The analysis found that most RAL customers were low-income taxpayers who claimed the Earned Income Tax Credit (EITC), a refundable credit for low-wage earners.

"Taking money out of the pockets of working poor families in the form of excessive interest rates and fees paid through RALs is unjust and indefensible," said Marian Wright Edelman, president of the Children's Defense Fund.

The settlement would cover refund anticipation loans that had been funded by Beneficial National Bank and offered through a Block office from April 8, 1994 through Dec. 31, 1996. Overall, the proposed nationwide settlement would make available cash payments to approximately 1.7 million class members who made approximately 2 million individual RAL transactions.

The settlement would be paid equally by Block and Beneficial National Bank, which funded the disputed loans.

The amount per RAL will depend on the number of claims to be paid. The remainder of the settlement fund would be used to reimburse plaintiffs' counsel for the costs of the litigation and pay their fees, and also cover costs associated with mailing and publishing the class notice and administering the settlement.

The proposed settlement is subject to the review and approval of U.S. District Judge Elaine Bucklo. If Judge Bucklo grants preliminary approval of the settlement, then the parties anticipate that notices will be mailed to class members within 45 days thereafter.

H&R Block agreed in December to settle more than two dozen class-action lawsuits over the refund loans for $62.5 million. That settlement covered 8 million customers.

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