H&R Block Under Renewed Fire For Selling Refund Anticipation Loans

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

17 August 2006

H&R Block, the tax advisor and financial services firm, is under pressure from a group of US state governments to end its practice of selling controversial high-interest refund anticipation loans (RALs).

In a statement, the group, which includes Connecticut Treasurer Denise L. Nappier, along with North Carolina Treasurer Richard Moore and New York Comptroller Alan Hevesi expressed concern that the selling of RALs to customers least able to afford them "is not only a dubious practice, but potentially places our long-term investments at risk."

Collectively, the states' pension funds hold more than 1.6 million shares, or about 1%, of H&R Block, the nation’s largest tax preparation chain.

Refund anticipation loans are high-interest, short-term loans that are often marketed to low-income consumers for the maximum amount of their expected federal tax refund. The effective annualized interest rate, based on a 10-day loan, ranges from 40% for a loan of $9,999 to 700% for a loan of $200, according to the states.

H&R Block is also facing a lawsuit filed by Californian Attorney General Bill Lockyer who argues that the tax preparation giant has violated 15 state and federal laws in marketing and selling RALs to mainly low-income families, claims which the company has firmly refuted.

The Community Reinvestment Association of North Carolina (CRA-NC) recently submitted a resolution to H&R Block to be included on the proxy statement to allow shareholders to vote on refund anticipation loan practices. The company filed a “no-action letter” with the Securities and Exchange Commission (SEC) to block the resolution from the proxy statement, which was granted.

The resolution referred to refund anticipation loans as “predatory” and would have requested that H&R Block “implement a policy mandating that the Company cease its current practice of issuing high-interest RALs.”

At time of writing, H&R Block had not issued a statement in response to the states' concerns, but the company has agreed to meet with shareholders and state officials to discuss the company's practice of marketing RALs.

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