Archive for Saturday, March 30, 2002

H&R Block’s loan program draws criticism

March 30, 2002


As tax preparation giant H&R; Block Inc. branches into financial planning, it's boosting profits with a loan program that gets customers refunds faster but takes a big bite of the proceeds.

Block last year arranged "refund anticipation loans" for 4.5 million of its customers about one of every four individuals that turned to the company for tax help. As this year's tax filing season began, Block was already 18 percent ahead of last year's pace.

The loans include fees and other charges that can be hefty, and helped Block collect a pretax profit of $51 on every $100 in revenue generated by the program last year.

This profit margin would be the envy of most businesses, but the refund loans have created legal and public relations headaches for Kansas City, Mo.-based Block.

Critics of the program liken Block to a loan shark that preys upon low-income households, immigrants and financially unsophisticated people. They say Block doesn't do enough to make it clear that the refund advance is really a loan that must be repaid even if the Internal Revenue Service disputes the tax return or part of the money is siphoned away to pay for outstanding child support, student loans or other liens.

"It's an unconscionable scheme. They are intentionally out to milk these people," said Houston attorney Edward M. Carstarphen, who is trying to pursue a class-action lawsuit against Block.

Block denies any wrongdoing and says the refund program simply responds to customer demand.

The loans "are extremely popular," said Block spokeswoman Denise Sposato. "We are just trying to offer our clients something they want."

Block and its lending partner in the program, Household Bank, tried to mute the criticism in 2000 by paying a $25 million settlement of a class-action lawsuit. The settlement is supposed to refund up to $15 in loan fees to as many as 1.67 million customers.

Carstarphen and other attorneys are seeking to overturn the settlement, contending the penalties against Block and Household should be more severe.

A federal judge in Chicago heard oral arguments in February on the appeal; if the appeal is sustained, it will revive the class-action suits that were effectively killed by the earlier settlement.

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