December 16, 2002
It may have seemed like a good idea at the time but the "refund anticipation" loan program is providing to be quite taxing for H&R Block Inc.
The tax preparation giant recently settled two class action lawsuits -- in New York City and Texas -- at an estimated cost of $45 million and other cases are pending in Maryland, New York, Illinois and Alabama.
On December 12, the company settled a lawsuit with the New York City Department of Consumer Affairs and in November it settled a similar case in Texas. The suits claim that Block received undisclosed fees in connection with the loans, which basically provide taxpayers with an immediate payment on their anticipated refund. When the refund is actually paid, the money goes to Block to pay off the loan.
In the New York City case, the city claimed that Block did not adequately differentiate between its "Rapid Refund" electronic-filing service and the refund anticipation loans. Block denied the allegation.
The company agreed to develop an educational campaign to help taxpayers understand the Earned Income Credit, which provides a tax credit to low-income working families. The company will also offer $35 rebate coupons to about 62,000 clients who would have qualified for the credit but were instead issued refund anticipation loans. The coupons can be used to help pay for future tax preparation.
In the Texas case, the company agreed to issue packages of five $20 rebate coupons to customers who took out the anticipated refund loans without being fully advised of the fees involved. The clients will also be eligible for coupons for tax software and a tax planning books.
The estimated cost of the program to the company was estimated at about $42 million. The company agreed to settle after the judge hearing the case said he was prepared to order Block to repay $75 million to consumers.
