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Refunds are really pricey loans, AG says

By Lisa Vorderbrueggen
Friday, March 14th, 2008 at 6:10 pm in State politics, taxes.

California Attorney General Jerry Brown’s office reports that the state’s top lawyer filed a request for an injunction today in San Francisco Superior Court to block tax service company H&R Block from “telling its customers that tax refunds can be obtained within two days, without disclosing that such payments are actually expensive loans.”

Here’s what Brown’s office sent out via email a few minutes ago:

“H&R Block incorrectly tells its customers that a tax refund can be obtained within two days–these payments are loans, not legitimate tax refunds,” Attorney General Brown warned. “Consumers should know that such quick payments result in high interest rates and heavy fees.”

It takes between 8 and 15 days for the Internal Revenue Service to send refunds to individuals who use direct deposit and 21 and 28 days to obtain a refund by mail. H&R Block, however, told customers that they could get their refunds within two days. These payments were actually loans offered by H&R Block that has annual percentage rates, including fees, of 80% or higher. According to publicly filed documents, millions of Californians have received these loans since 2001.

California law and the Internal Revenue Service require that tax preparers distinguish between tax refunds and “refund anticipation loans” that are based upon the expected tax refund amount. According to California Business and Professions Code Section 22253.1 (a), “any tax preparer who advertises the availability of a refund anticipation loan shall not directly or indirectly represent the loan as a client’s actual refund.”

At a hearing this afternoon, the attorney general asked the San Francisco Superior Court to issue a preliminary injunction prohibiting H&R Block from continuing to represent its loans as tax refunds. The Court has scheduled a hearing to decide the matter on April 3rd.

Investigators in the attorney general’s office called H&R Block offices throughout California, requesting information about how long it would take to get tax refunds. Two-thirds of the H&R Block representatives told investigators that refunds can be sent to taxpayers within two days, without disclosing the fact that it was actually a loan.

Most of the people who get the loans receive the Earned Income Tax Credit. People who earn this credit typically make between $10,000 and $35,000 and have several dependents, making them especially vulnerable to high-interest loans.

“For years, H&R Block has not disclosed the fact that a two-day return is a loan, not a true tax refund,” said Brown. “It is shocking that the company still continues this unlawful business practice and fails to properly train its employees.”

Today’s request for an injunction is part of an ongoing lawsuit against H&R Block, filed in 2006, alleging that the company engaged in false or deceptive advertising in its marketing of high-cost loans to low-income families. California’s lawsuit alleges that H&R Block violated IRS rules prohibiting the company from directly providing loans. According to the lawsuit, the company provided customers with the loan applications, filled out the applications, and sent the applications to the banks. H&R Block also provided customer’s loan money on an “Emerald” ATM card that came with heavy fees and costs.

Defendants in the case include H&R Block Services, Inc.; H&R Block Enterprises, Inc.; H&R Block Tax Services, Inc.; and Block Financial Corporation. Last year, H&R Block’s total revenues exceeded four billion dollars.

For more information on California’s lawsuit against H&R Block, visit: http://ag.ca.gov/newsalerts/release.php?id=1261&year=2006&month=2

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