H&R Block Slapped With $75 Million Kickback Ruling

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A Texas judge has ordered that H&R Block is liable for paying $75 million in damages relating to a class action suit alleging the tax preparation company engaged in a "clear and serious violation of duty" by not informing tax clients of fees it received for issuing refund anticipation loans during the period 1992 through 1996.

The judged announced his plans in a letter that stated he believes that H&R Block's actions were "intentional, willful and deliberate" when it offered short-term high-interest loans to customers expecting tax refunds but did not disclose to customers the fact that it was receiving a fee for each loan from Household International Inc., the banking company providing the loans.

The loan fees received from Texas taxpayers who are members of the class action suit total $3.5 million for the time period mentioned in the suit. But the judge went beyond the loan fees to order H&R Block to repay the Texas customers all tax preparation and electronic filing fees as well, bring the total amount of the claim to nearly $75 million.

As a result of the controversy, H&R Block stock prices have dropped, reaching a low of $35.87, down from a 52-week high of $51.70 in August, 2002. Trading in Block's stock was temporarily halted last week to give the company time to respond to information that the company may face as much as $2 billion in liabilities from class actions suits now in progress.

Block steadfastly denies it has a fiduciary duty to disclose its loan fees to customers. "The company is shocked and outraged at this ruling," said Block chairman and chief executive officer, Mark A. Ernst. In the absence of an appeal, the case will proceed to a jury trial where punitive damages will be determined.

Meanwhile, Block indicated on Thursday that it believes Household International may be liable for damages resulting from the Texas lawsuit. "We believe that there is a contractual indemnification provision that applies in this case and Household disagrees," said an H&R Block spokeswoman in an interview that appeared in Forbes magazine.

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