California Sues H&R Block over “Instant” Tax Refunds

California’s Attorney General, Bill Lockyer, filed a suit in San Francisco last week alleging that H&R Block and participating lenders have deceived the tax preparation company’s clients by failing to disclose the true costs of “Instant” refund anticipation loans. The loans are short-term advances of federal income tax refunds, minus fees and interest, that give customers immediate access to their money. The lender who provides the advances – HSBC Bank - collects the borrower’s actual Internal Revenue Service (IRS) refund check as the loan repayment. Block doesn’t make the loans; the firm collects a fee for processing the loan paperwork, the Sacramento Bee reports.


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Interest rates charged on the loans could run as high as 100 percent over the course of a year, the suit alleges. “In marketing and selling these expensive loans, H&R Block has profited greatly, but deceived customers, violated their privacy rights and taken money from California families who can least afford it,” Lockyer said.

H&R Block has sold more that 1.5 million refund anticipation loans in California since 2001, Tom Dressler, a spokesman for the attorney general, said in a Reuters report, and about 70 percent of the loans went to low-income families. The California suit seeks compensation for H&R Block clients and a $20 million fine.

H&R Block said it would fight the suit. Spokesperson Linda McDougall said that H&R Block charged the same tax preparation fees for everyone, based on the complexity of the returns. Interest expenses on the loans are paid when the IRS issues the refund, she said, the Sacramento Bee reported, usually within two weeks if the return is filed electronically,.

The suit lacks merit, H&R Block claims in a press release, because it focuses on the cross-collection practices of the lender, which are governed by federal and not state laws. The suit alleges that Block does not tell clients that any previous years’ unpaid refund fees may be deducted, along with current fees, says.

Defending its procedures in the press release the company says, “Client disclosures go into great detail to describe other, lower-cost tax filing options, explain the cost of the loans, and advise clients that cross collection would occur on such prior debts. The word “loan” appears on each page of the bank’s loan application in letters two inches high, and also is very clearly used in all of the product’s advertising.”

Block settled four class-action lawsuits over the loans in December by agreeing to pay $62.5 million.

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