NEW YORK – After a barrage of lawsuits accusing it of overcharging customers, H&R Block Inc. (HRB) on Thursday said it will slash fees on loans to people waiting for tax refunds.
The largest U.S. tax preparer said it is reducing by more than 60 percent the typical rate on refund-anticipation loans (RALs). These are short-term cash advances made to customers who expect refunds after H&R Block prepares their tax returns.
Under the new fee schedule, a typical $2,800 refund loan might cost as little as $60, so long as customers open H&R Block bank accounts and arrange for refunds to be deposited directly into them.
H&R Block said this equates to a 36 percent annual interest rate, in line with what consumer advocates suggest. It said this is below the 93 percent effective rate it might have charged before, and the 103 percent that rivals might charge.
"RALs are, for many people, one of the few real credit choices available," H&R Block Chief Executive Mark Ernst said at the Kansas City, Missouri-based company's annual meeting, which was Webcast.
Combining the loans with a bank account can help some customers enter the "financial mainstream," he said.
H&R Block hopes the lower rates, and low-cost bank accounts with no minimum balance requirements also introduced on Thursday, will help it rebound from a difficult year.
The company faces lawsuits by California Attorney General Bill Lockyer over refund loans, and New York Attorney General Eliot Spitzer over what he calls excessive fees on Express IRA retirement accounts.
H&R Block has also suffered rising defaults at a mortgage unit and a loss in market share to tax preparer Jackson Hewitt Tax Service Inc. And the company reported an embarrassing error in computing its own taxes.
The new program is being conducted in conjunction with a unit of Britain's HSBC Holdings Plc that processes RALs.
On August 28, U.S. District Judge Elaine Bucklo in Chicago approved a $39 million settlement in an eight-year-old class-action lawsuit accusing H&R Block of deceiving customers into taking out refund loans, also made through an HSBC unit.
H&R Block launched its bank this spring to diversify its operations and win more business from clients.
On Thursday, it introduced two savings accounts with annual yields of 5.25 percent, and a low-fee "Emerald" account including a prepaid bank card.
The company said it hopes to open at least 1 million bank accounts by next April. It said it has nearly 3 million clients who don't have bank accounts.
Ernst hopes the changes will help H&R Block recover from recent mishaps.
"This past year had too many surprises," he said.
H&R Block shares fell 10 cents to $21.09 in afternoon trading on the New York Stock Exchange. They began the year at $24.55.