H&R Block to Appeal $75 M Payment Order, Faces Other Worries

Last week a judge announced plans to order H&R Block to pay a fee of $75 million for what the judge claims was a "clear and conscious violation of duty" in Block's practice of accepting and not advising clients of a fee from lender Household Finance, Inc. for high-interest tax refund anticipation loans.

Judge J. Manuel Banales of Kleberg County, Texas, who will issue the order, disclosed his opinion that Block was not looking out for its clients by not telling them of the fee. The judge's comments were released in a letter in which he announced his plans to order Block to pay a $75 million assessment as a result of a class action lawsuit brought by Block clients in Texas. The $75 million covers not only a reimbursement of the fiduciary fees of members of the class action suit but all fees associated with tax preparation and electronic filing.

Block has indicated it plans to appeal the order when it is formally filed. Block CEO Mark A. Ernst has said his company is "shocked and outraged" at the ruling, denying a fiduciary duty to disclose loan fees to customers.

The New York Post is reporting that Block has indicated it plans to invoke a clause in its contract with Household Finance, Inc., the provider of the high-interest loans, to make Household responsible for any fees resulting from the class action suit should Block lose its appeal. Meanwhile, British banking company HSBC Holdings Plc announced plans on Thursday to purchase Household International Inc. for $14.2 billion.

This week Block faces a new controversy as reports have surfaced indicating accounting troubles associated with the company's mortgage financing business. The mortgage business primarily services clients with prior credit problems who have difficulty obtaining traditional mortgage loans. The company uses what is called a gains-on-sale reporting method where estimated profits from the future sales of mortgages are reported currently with no guarantee that the mortgages will be sold.

Block share prices, which have been volatile lately, fell as much as 13% to approximately $29 per share on Tuesday with reports of the negative news, but rebounded somewhat to close at $32.19, down 4.3%. Shares closed on Thursday at $32.95.

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