H&R Block Inc. was sued on Wednesday by California’s attorney general, who accused the largest U.S. tax preparer of overcharging thousands of poor customers on loans to tide them over until they get tax refunds.
Attorney General Bill Lockyer said in his lawsuit that H&R Block charged interest rates on its “refund anticipation” loans that could top 500 percent a year including fees.
He also said the company’s advertising promise to customers of “cash, cold, green, in your hand, out the door” falsely portrayed the nature of the loans, which companies provide to people who expect tax refunds but want the money sooner.
Lockyer wants Kansas City, Missouri-based H&R Block to reimburse customers in an amount he said could reach the hundreds of millions of dollars, and pay a civil fine of at least $20 million.
H&R Block said the lawsuit lacks merit. Lockyer filed his 20-page complaint in state superior court in San Francisco.
In December, H&R Block said it agreed to pay $62.5 million to settle four class-action lawsuits over the loans. Last May, a federal judge in Chicago rejected a $360 million nationwide settlement raising similar issues, calling the sum inadequate.
According to the California lawsuit, H&R Block has, since 2001, sold more than 1.5 million refund anticipation loans to state residents, with rates that typically ranged from 40 percent to well over 100 percent. About 70 percent of the loans went to low-income families, it said.
California also said H&R Block advertising minimized or omitted language showing the nature of the loans, and instead called them a “refund” or “instant money.”
Lockyer also accused the company of sharing customers’ tax return information without consent, and using it to market other financial products and collect debts.
“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 in a statement.
H&R Block spokeswoman Linda McDougall said rates charged by the company’s partner bank, HSBC, are lower than Lockyer alleged, and are not discriminatory against poorer customers.
“Tax preparation fees are the same for everybody, in that they are based on the complexity of taxpayers’ returns, not their income levels,” she said.
McDougall also defended H&R Block’s advertising. “All of our ads use the word ’loan,’” she said. “In addition, every client gets a one-page sheet, written in plain English, describing the loans before they agree to take them.”
A spokesman for the attorney general said Judge James Warren of the San Francisco court is scheduled on Thursday to consider a temporary restraining order against H&R Block.