H And R Block Agrees To Settle Over Tax Refund Loans

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

31 August 2006

US tax preparation firm H&R Block has said that it is "pleased" to be able to settle a long-running class action lawsuit related to its sale of controversial refund anticipation loans, or RALs, for $39 million plus interest.

The settlement covers 1.72 million H&R Block customers who bought the loans, arranged through Beneficial National Bank - a unit of British bank HSBC Holdings - between April 1994 and December 1996.

RALs are short term advances that tax preparers can extend to their customers, who then sign over their official tax refund checks when they are issued. Interest rates on such loans are high, and can equate to as much as 100% on an annualized basis.

The plaintiffs claim that the company did not make it clear that the cash advances they received were actually packaged as loans, an argument that H&R Block rejects. Nonetheless, the company was keen to settle a lawsuit which has dragged on since 1998. An initial $25 million settlement was thrown out by the federal appeals panel in 2003, while a second settlement was rejected by District Judge Elaine Bucklo as inadequate.

In a judgment dated August 28, Bucklo concluded that the third settlement was "fair and reasonable." According to Bucklo, it would have been doubtful if the plaintiffs would have succeeded at trial.

Ronald Futterman, the Chicago attorney who represented the plaintiffs, said that eligible class members would be paid about $78 for each of their loans, provided no more claims were submitted before a deadline at the end of October.

In a statement, H&R Block said it was "pleased" that the judge accepted the settlement.

"We view it as fair and beneficial to the class members and we're eager to put this nearly decade-long lawsuit behind us as we continue preparing for the upcoming tax season," the company said.

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