H&R Block has agreed to repay between $11.4 million and $19.4 million to settle a lawsuit brought by New York State Attorney General Andrew Cuomo over the tax prep chains marketing of high-fee individual retirement accounts to customers.
The agreement requires Block to refund the fees paid by all of its customers nationwide who purchased the companys Express IRA product, and convert all of the existing accounts to a new program that does not charge onerous fees. Cuomo had accused Block of fraudulently marketing the IRAs to low- and middle-income families.
The lawsuit alleged that Block, the No. 1 tax service provider, had steered hundreds of thousands of customers, including more than 30,000 New Yorkers, into IRAs that were virtually guaranteed to lose money due to a combination of hidden fees and low interest rates. Customers who are eligible to receive the refunds will be contacted by a court-appointed administrator.
H&R Blocks aggressive peddling of fee-laden retirement accounts that were virtually guaranteed to lose money needlessly cost families across the country millions of their hard-earned dollars, said Cuomo in a statement. This settlement will provide a measure of relief in these difficult times.
Since 2000, H&R Block opened more than 600,000 Express IRA accounts for its tax preparation clients. Customers were told that the IRA paid great rates and was a better way to save. However, 85 percent of the customers who opened the accounts paid more in fees than they earned in interest. Hundreds of thousands of H&R Block customers closed their accounts and incurred additional undisclosed fees.
The Attorney Generals lawsuit alleged that the company pushed the Express IRA in an effort to encourage repeat customers for its tax preparation services and to maximize its fee revenue. It also cited internal documents showing that H&R Blocks senior management at the time knew that many of its customers were losing money on their Express IRAs, yet took no action to address these concerns. Instead, H&R Block continued to tout the Express IRA as a good way for lower- and moderate-income families to save money.
The Attorney Generals office determined that H&R Blocks failure to adequately disclose its fees, its failure to warn that the interest paid would not cover the fees in certain instances, and its misleading description of the interest rates as great when they were at times less than one percent annually violated New Yorks consumer fraud law, and were a breach by the company of the fiduciary duties it owed to its clients.
In addition to providing full refunds of fees it charged to all customers who purchased an Express IRA since 2000, H&R Block will pay $750,000 in fines, fees and costs to the state. H&R Block will also convert all existing Express IRA accounts into a successor IRA program that does not charge fees. Finally, the company will enhance its disclosures of fees and terms and implement other business reforms.
The Attorney Generals settlement coincides with an independent settlement of various consolidated federal private-plaintiff class actions, based upon the same allegations, pending before the U.S. District Court for the Western District of Missouri, in Kansas City, where Block is headquartered.