California’s attorney general is asking H&R Block Inc. about its refund anticipation checks, which allow customers to pay Block’s fees from their tax refunds.
The Kansas City-based tax preparer disclosed in a routine report to investors that its refund transfer product drew the state official’s inquiry. It said the official is seeking information about the product. The state has taken no legal action against Block about the product.
At issue may be whether disclosures under state truth-in-lending laws apply to the product, according to H&R Block’s quarterly financial filing through the Securities and Exchange Commission. Fees also may be an issue.
Block’s filing said, in part, that “any requirement that materially alters our offering of RACs, including limitations on the fees we charge or disclosure requirements that could reduce the demand for these products, could have a material adverse impact on our business.”
Sign Up and Save
Get six months of free digital access to The Kansas City Star
H&R Block collected $181 million in revenues from its customers taking out the refund anticipation checks last year. Total revenues topped $3 billion.
Company officials declined to comment Wednesday.
The company’s filing cited a California court ruling that found a competitor’s refund transfer product “was subject to truth-in-lending and other related laws.” Block’s filing said the ruling was upheld on appeal. It did not name the competitor.
H&R Block’s refund transfer product, however, shouldn’t trigger the same sort of finding, the company said.
“We believe there are differences that distinguish our RAC product from the product that was the subject of the competitor’s case,” the company’s filing said.
A footnote to H&R Block’s online description of a RAC said it is “a bank deposit, not a loan, and is limited to the size of your refund less applicable fees.”
The California inquiry comes as Block is making final plans to enter its busiest business season and taxpayers begin to seek help and software to do their taxes.
Block offers the refund transfer as a check, on a prepaid debit card or as a deposit to an existing bank account. It deducts its tax service fees and fees for the transfer from the refund amount. Customers don’t make any payments out of pocket.
Refund transfers through checks and advances through loans have been a source of legal battles for the tax preparation industry and H&R Block over the years.
H&R Block currently is facing lawsuits seeking class-action status to represent customers who have gotten loans and checks.
“The plaintiffs generally allege we engaged in unfair, deceptive or fraudulent acts in violation of various state consumer protection laws,” its filing Wednesday said. Specifically, it said, the claims include allegations that Block provided inaccurate truth-in-lending disclosures on refund anticipation loans and failed to provide disclosures with refund anticipation checks.
Block said the lawsuits have been consolidated into one case in federal court in Illinois. The company won its motion to have the claims sent to arbitration and the court cases stayed pending an outcome of the arbitration. The parties suing Block have appealed that decision.
H&R Block had spent years resolving prior legal challenges to its refund anticipation loans, which advance taxpayers’ expected tax refunds with loans from a bank.
The company dropped refund anticipation loans in the summer of 2011, saying it didn’t need the product to attract customers. It had been unable to offer the loans in the spring 2011 tax season because the bank providing the loans had stopped offering them.