H&R Block announces change in its refund loan program

KANSAS CITY, Mo. -- H&R Block will no longer own any part of the loans it offers clients awaiting tax refunds, a move expected to cost the company $50 million a year in revenues, the tax preparer said Wednesday.

The change is part of a one-year agreement between Block and the company that provides the loans, Household Tax Masters Inc.

Under Block's program, a customer awaiting a tax refund can get most of the money in two to three business days with a loan from Household. To qualify, the taxpayer must agree to pay up to $40 to file the return electronically and pay a loan processing fee of up to $89.95.

In the past, the lender has paid Block a referral fee for each refund loan. Block also retained up to a 49.9 percent interest in the loans.

But on Wednesday, Block announced it had waived its rights to purchase interest in the loans in exchange for direct payments from Household.

The refund loans have created legal headaches for Block, but company spokesman Tom Linafelt said the change had nothing to do with any litigation. Instead, the move made sense for Block, he said, because of expenses related to a change in the bank where the loans originated.

Linafelt said that for Block to continue purchasing an interest in the loans, it would have had to make some back-office changes.

Some lawsuits have claimed the company failed to disclose a "license fee" paid to Block by the lending bank. Block began disclosing the fees after 1996.

Others have claimed Block and its banking partner illegally gouged customers by providing the loans at interest rates exceeding 100 percent.

Block has denied any wrongdoing and says the refund program simply responded to customer demand.

The company said the move will reduce Block's revenues by about $50 million, but is not expected to affect earnings or clients. During the fiscal year that ended April 30, Block reported $3.3 billion in revenues.

Shares of Block fell 18 cents to close Wednesday at $41.50 on the New York Stock Exchange.

Critics assert the refund loans victimize low-income households, immigrants and financially unsophisticated taxpayers who aren't adequately informed about the high interest rates.

Changing how Household compensates Block does nothing to address these criticisms, said Jean Ann Fox, director of consumer protection for the Consumer Federation of America.

"It doesn't appear that they have changed the essential structure of the transaction," Fox said.

Chi Chi Wu, staff attorney with National Consumer Law Center said it was unclear what affect the change would have on litigation against Block.

On Wednesday, Block also announced a judge hearing a class action lawsuit in Maryland involving the tax refund loans has agreed to stay that case until a Chicago trial court has ruled on the fairness of a pending nationwide settlement in another class action case and until all appeals are completed.

The Maryland case was scheduled to go to trial this past Tuesday.

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