California Files Lawsuit Against H&R Block Over RALs

by Leroy Baker, Tax-News.com, New York

17 February 2006

Californian Attorney General Bill Lockyer has filed a lawsuit against H&R Block, alleging that the tax preparation giant has violated 15 state and federal laws in marketing and providing refund anticipation loans (RALs) to mainly low-income families, claims which the company has firmly refuted.

Lockyer filed the complaint in San Francisco Superior Court on Wednesday, along with a request that the court issue a temporary restraining order (TRO) to prohibit H&R Block from engaging in deceptive debt collection practices related to RALs.

RALs are short term advances that tax preparers can extend to their customers, who then sign over their official tax refund cheques when they are issued. However, H&R Block has been accused in previous class actions of charging "usurious" rates for this service.

In December, H&R Block announced that it had reached an agreement with plaintiff class representatives and class counsel that would settle four state class action lawsuits related to RALs, as well as potential claims of RAL purchasers in 22 other states and the District of Columbia.

The proposed settlement provided for $62.5 million in the settling jurisdictions and called upon H&R Block to put in place "industry-leading disclosure practices" for future refund anticipation loans provided to its clients.

In the latest complaint by California, it is alleged that the company violated state and federal laws that regulate debt collection practices and contracts, and prohibit false or deceptive advertising, unfair business practices, and unauthorized use or sharing of individuals’ tax return information.

The complaint asks the court to require the defendants to pay restitution to harmed consumers, plus at least $20 million in civil penalties. The complaint does not specify the total restitution amount, but Lockyer estimated the maximum could reach into the hundreds of millions of dollars.

“Millions of Californians have placed their trust in H&R Block, and unfortunately H&R Block has repaid them by violating that trust,” remarked Lockyer.

“In marketing and selling these expensive loans, H&R Block has profited greatly, but deceived consumers, violated their privacy rights and taken money from California families who can least afford it. This lawsuit seeks to hold the company accountable for unlawful business practices, prevent future violations and compensate victims," he added.

The complaint also alleged that H&R Block frequently steered customers to companies that charge fees to cash RAL checks, with H&R Block getting a kickback on a portion of those fees, and it accused the firm of failing to adequately disclose these arrangements to consumers.

H&R Block has firmly refuted all of these allegations, and described the Californian Attorney General's filing as having "no legal or factual merit".

"We clearly lead our industry in the quality and quantity of disclosures and financial education provided to clients so that they can make informed decisions in all aspects of the tax preparation and refund process," stated Murray Walton, vice president of compliance.

"We believe the Attorney General would better serve California consumers by ensuring that H&R Block's competitors follow our example," he added.

H&R Block further explained in a statement that it has been discussing aspects of the refund lending program with the California Attorney General for more than two years, and has voluntarily made several enhancements to its client disclosures nationwide over the past several years.

The company also argued that RALs have long been popular with taxpayers.

"For nearly 20 years, refund anticipation loans have been popular with tax clients who want fast access to money based on their anticipated tax refunds as well as the convenience of not having to pay for their tax preparation up front," the firm stated.

"Many clients who have chosen refund anticipation loans in the past are repeat customers," it concluded.

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