Kansas City, Mo. A federal judge in Chicago has denied H&R Block Inc.'s proposal to settle a class-action lawsuit over its tax-refund loans for $360 million, the Kansas City, Mo.-based company said Friday.
U.S. District Judge Elaine Bucklo struck down the agreement with little explanation Wednesday, other than to suggest the two sides try again with an independent mediator. Bucklo rejected an earlier proposed settlement in 2003.
Company spokeswoman Linda McDougall said H&R Block would prepare for the case going to trial this October.
"Of course, we're disappointed in the judge's decision because we felt the settlement provided fair value to the class members," McDougall said. "We intend to vigorously defend the company."
Attorneys for the plaintiffs didn't immediately return phone calls for comment.
The nation's largest tax preparer and its banking partner, HSBC Taxpayer Financial Services Inc., are accused of victimizing customers by providing "refund anticipation loans" at interest rates at frequently more than 100 percent.
The proposed settlement, filed in the U.S. District Court of Northern Illinois, was announced on May 10 and would have covered more than 28 million customers and 55 million transactions. The settlement would have provided $110 million in cash and $250 million in coupons for $6 off H&R Block tax preparation services.
Under the refund anticipation loans, customers due a tax refund could receive most of the money in two or three business days by paying a fee to file the return electronically and a loan processing fee.
Critics claim the loans take advantage of low-income households, immigrants and financially unsophisticated taxpayers who weren't adequately informed about the high interest rates.
H&R Block has said it didn't inform customers about the licensing fee because it didn't affect the cost of the loan or the tax preparation service. The company began disclosing the fee in 1997 and stopped charging it in 2003.
Shares of H&R Block gained 9 cents to $50.35 Friday on the New York Stock Exchange. The stock has traded in a 52-week range of $45.13 to $55.86.