More Setbacks for H&R Block as it Launches New Bank
The latest blow to the company’s image has been a massive lawsuit brought by Eliot Spitzer, Attorney General of New York, charging that Block breached its fiduciary duty to clients through its Express IRA program. According to Spitzer, more than 85 percent of Express IRA account holders lost money after opening one of these accounts because the low interest rates could not keep ahead of charges that included unadvertised fees.
Setting the stage for a major confrontation with New York's Attorney General, according to newsinferno,com, Block’s Chief Executive Officer, Mark Ernst, in a letter to the Wall Street Journal, called Spitzer’s filing “an unfair attack on a good product that plays a key role in our mission to help lower- and middle-income Americans.” The company also denied any wrongdoing in its press release.
Spitzer responded that although the goal of his office is to keep companies “alive and viable”, newsinferno,com says, H&R Block’s press release and denials made it “very difficult for me to imagine that we will settle.”
H&R Block Bank, the company’s latest addition to its financial services, was granted a charter by federal regulators on the same day that Spitzer announced his suit, the New York Post reports. Two New York consumer groups, The Neighborhood Economic Development Advocacy Project and the Inner City Press/Fair Finance Watch, are attempting to block the launch of the bank in New York, citing a condition in the charter that states that “additional information having a material adverse bearing on any feature of the application” could “scotch” approval, the Post says.
“I would be surprised if [the federal government] can stand to allow this to move forward, given the Attorney General’s actions,” says Peter Skillen, head of Community Reinvestment Association of North Carolina, another consumer group that opposes the bank’s charter, the Post says. H& R Block Bank is scheduled to begin operations on April 30.
Within days of the announcement of the suit against H&R Block in New York, a major class-action lawsuit was filed in Kansas City, Missouri, on behalf of H&R Block shareholders, newsinferno,com says. The notice of the class action, published by the law offices of Bruce G. Murphy in Vero Beach, Florida, refers to the New York suit; a suit announced in February by California’s attorney general, Bill Lockyer, that targets Refund Anticipation Loans; and the tax errors that will result in a restatement of earnings for two years. The notice charges that the company issued “material misrepresentations to the market during the Class Period,” and calls attention to the losses suffered by H&R Block stockholders since the Spitzer complaint was made public.
The New York suit against Block seeks $250 million in fines, in addition to refunds to 500,000 clients who opened the IRA accounts. Other states have initiated similar cases, newsinferno,com says.