Block Offers to Settle Texas Class Action

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H&R Block, surprised last week when a Texas judge indicated his plans to order the nation's largest tax preparer to pay $75 million in a class action lawsuit, has announced its intention to settle the suit for coupons, not cash.

The lawsuit alleges that H&R Block had a fiduciary duty to customers to inform them of a fee payable to Block that is part of the cost of short-term tax refund anticipation loans arranged by Block through lender Household Finance. Block CEO, Mark A. Ernst, stated last week that his company was "shocked and outraged" at the ruling.

Nevertheless, Block has offered to settle the suit, offering each member of the class five $20 coupons that can be used for H&R Block tax preparation and planning services over a period of five years, as well as discounts on tax software and a tax planning book. Although the settlement could cost Block as much as $282 million, significantly more than the $75 million mentioned by the judge, the firm is willing to wager that many of the coupons will not be used.

Should the settlement be accepted, H&R Block proposes to record a pre-tax charge of $41.7 million in its second quarter, which ended October 31.

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