H&R Block and its banking partner, HSBC Taxpayer Financial Services Inc., have agreed to settle a class-action lawsuit alleging they gouged consumers by offering “tax refund anticipation loans,” with interest rates exceeding 100 percent. The proposed settlement of $360 million, was filed Monday in U.S. District Court in the Northern District of Illinois.
U.S. District Judge Elaine E. Bucklo, who rejected a proposed settlement in 2003, must approve the settlement covering more the 55 million transactions made by 28 million customers. The proposed settlement would consist of $110 million in cash and $250 million in $6 coupons redeemable for tax preparation services. Class members would also receive cash for attorney fees.
Under the tax refund anticipation loan program, customers owed a refund could receive funds, less electronic filing and loan processing fees, in a couple of business days. If the settlement is approved and accepted, it will create a “safe harbor” in which H&R Block and HSBC can continue to sell the popular refund loan program.
Consumers paid more than $1.4 billion in loan charges and fees associated with refund anticipation loans in 2003, according to a survey released in January 2005 by the Consumer Federation of America (CFA) and the National Consumer Law Center (NCLC). Interest rates on these short-term loans ranged from 70 percent to more than 1,700 percent.