California Atty. Gen. Bill Lockyer sued H&R; Block Inc. on Wednesday, seeking to stop a widely used loan program that entitles the nation’s largest tax preparer to a chunk of its customers’ tax refunds.
The San Francisco Superior Court complaint joins a long list of lawsuits that have targeted H&R; Block’s refund anticipation loans -- cash advances the company arranges for customers so they won’t have to wait for a check from the government.
For the loans, customers must agree to give a percentage of their tax refund to H&R; Block and its banking partner.
More than 1.5 million Californians have received tax refund loans through H&R; Block since 2001, Lockyer’s suit alleges.
The loans are a major moneymaker for the company. In its last fiscal year ended in April 2005, H&R; Block recognized a pretax profit of $101.3 million on revenue of $182.8 million generated from the loans nationwide, according to the company’s annual report. Kansas City, Mo.-based H&R; Block has defended the loans as a popular program that helps its customers and adheres to all laws.
Lockyer alleges the company misleads its customers about the costs of the short-term loans, sometimes imposing fees that translate into interest rates of more than 500%.
The suit alleges that H&R; Block has inaccurately depicted the loans as “instant money” and hasn’t adequately warned recipients about the possible consequences if they don’t receive the entire refund claimed.
Lockyer wants H&R; Block to pay at least $20 million in fines in addition to refunding customers for its alleged abuses. He also intends to ask for a court order preventing H&R; Block from offering the loans in California.
Shutting the program would be a significant blow to H&R; Block, particularly if a court order comes during the next two months when most people are filing their returns.
Tax refund loans account for about 4% of H&R; Block’s annual revenue.