H&R Block has agreed to settle the latest in a series of lawsuits filed against it for its practice of "refund anticipation loans," or "payday loans."
The settlement was announced Dec. 21st, with a West Virginia Circuit Court judge scheduled to consider the agreement on Dec. 23rd.
The terms of the settlement would resolve claims in 22 states and the District of Columbia, as well as four class-action lawsuits in West Virginia, Ohio, Maryland, and Alabama.
Under the settlement, Block would pay claims to 8 million customers who took out payday loans between 1989 and 2005. The terms of the payout were not disclosed, but Block stated it would have to incur a third-quarter tax charge of $31 million to cover the claims.
The settlement would not affect a case pending in Chicago against Block and its partner, HSBC Financial Services, for racketeering charges in relation to their pushing of payday loans on customers. A previous settlement offer was rejected, and the case is scheduled to go to trial in March 2006.
The presiding judge, Elaine E. Bucklo, had validated the racketeering charges in Apri1 2004, even as she rejected most of the claims made against Block and HSBC.
Block and HSBC appealed to the U.S. Supreme Court, but the court refused to grant a motion to block the case, enabling the class action to proceed.
Block is accused of promoting payday loans -- the practice of "loaning" a taxpayer their anticipated refund after tax calculations are made, minus a host of feesto low-income consumers and families. Interest on payday loans can reach astonishing levels, sometimes as high as 700 percent.
A high percentage of taxpayers who apply for payday loans receive the Earned Income Tax Credit (EITC), which provides financial assistance to the working poor. The lure of quick cash has led many cash-strapped consumers to spend nearly $2 billion in fees and charges to tax preparers such as Block.
Consumer watchdog groups such as the National Consumer Law Center (NCLC) have repeatedly challenged Block's promotion of payday loans. The NCLC recently led an effort to oppose Block's attempt to charter its own bank, on grounds that the move would enable Block to increase its ability to market payday loans to vulnerable customers.