H&R Block to Stop Selling Refund Anticipation Loans in California

January 2, 2009
Tax preparation giant H&R Block has agreed to stop selling high-cost refund anticipation loans as "early tax refunds" in California.

Attorney General Edmund G. Brown Jr. said the settlement, which includes a $4.85 million payment by the company, will protect cash-short consumers from paying exorbitant interest rates that they can little afford.

Brown filed suit against H&R Block in early 2006 regarding its marketing and sale of income tax refund anticipation loans and a related product called refund anticipation checks. The company denied any wrongdoing.

A refund anticipation loan is a short-term loan secured by a taxpayer's anticipated income tax refund. The complaint alleged a variety of deceptive practices by H&R Block including:

• Deceptive advertising designed to disguise refund anticipation loans, which carry fees and other costs, as tax refunds, which the IRS provides without charge; and

• Unfair debt collection practices by which customers' refund proceeds were garnished to pay off debts they supposedly owed.

The settlement provides for up to $2.45 million in restitution for consumers who purchased a Refund Anticipation Loan or a Refund Anticipation Check through H&R Block between January 1, 2001 and December 31, 2008. In addition, the company will pay $500,000 in penalties and $1.9 million in fees and costs.

In addition. H&R Block will be prohibited from marketing these loans and related products in a deceptive or misleading manner and will be required to make clear and conspicuous disclosures to consumers prior to their purchase of these products. Terms of the settlement are limited to three years.

A settlement administrator will be contacting eligible consumers directly. Eligible consumers may also write to the Attorney Generals Public Inquiry Unit at P.O. Box 944255, Sacramento, CA 94244-2550, or may send an e-mail at ag.ca.gov/contact/.

Brown previously settled claims against Jackson Hewitt and recently concluded a trial against Liberty Tax Service, the second and third largest tax preparation companies in the country, respectively. All three lawsuits involved refund anticipation loans and related products.