The class action complaint against H&R Block Inc. alleges that the company aggressively markets its tax refund anticipation loans (RALs) to the working poor and minorities at exorbitant interest rates.
The plaintiffs claim that the loans provide a significant profit to H&R Block and provide little to no value to H&R's customers. "Tax filers can usually get their federal tax refund in 8 to 15 days by direct deposit, without getting a loan or paying any extra fees to companies like Defendant. The IRS usually issues refunds by check within 21 to 28 days," they claim.
The plaintiffs further allege that H&R Block aggressively markets RALs, particularly to those who receive the earned income tax credit (EITC). They claim that H&R Block filed one out of every five EITCs filed in the United States. Between 1996 and 2010, HSBC Trust Co. served as the lender for H&R Block's clients that received HSBC RALs. H&R Block's HSBC RAL participation revenue was $146.2 million, $139.8 million and $190.2 million for fiscal years 2010, 2009 and 2008, respectively, they say.
In December 2010, HSBC terminated its agreement to provide H&R Block's clients with HSBC RALs due to significant federal regulatory restrictions. H&R Block's HSBC RAL participation proceeds immediately decreased to $17 million. To offset the loss, H&R Block raised the fees on its H&R Block Bank (HRBB) Federal Refund Anticipation Checks (RAC), and plaintiffs claim that H&R Block then aggressively marketed those loans to its working poor and minority clients. H&R Block increased its HRBB RAC fee revenues over 107 percent from 2010 to 2011.
Plaintiffs allege that "Defendant violated Cal Bus & Prof Code § § 22253.1(d)(1)-(2) and Cal Bus & Prof Code § 22253.1(f)(2) by failing to disclose, at multiple points throughout the RAL facilitation process, forms separate from the bank product application articulating the interest rate 'using the guidelines established under the federal Truth in Lending Act (15 U.S.C. Sec. 1601 and following)' for each HSBC RAL, HSBC RAC and HRBB RAC it facilitated for a Class Member. For each HSBC and HRBB RAL, Defendant failed to accurately disclose the interest rate, as it did not include the Refund Account Fee as part of the finance charge."
