Block Gets Okay for Bank in Midst of Bad News

The Office of Thrift Supervision approved an application from H&R Block Inc. to organize a federal savings bank in Kansas City, Mo.

The savings bank will operate as a traditional thrift institution. The regulator said Block plans to capitalize the new savings bank with about $160 million, plus an additional capital contribution of $25 million by the end of its first year of operation. OTS also said in a statement that the bulk of business for the bank in its first quarter is expected to be mortgage purchases from H&R Block-affiliated mortgage companies.

It's been a rough start to 2006 for the tax prep giant. Block said it collected $1.5 billion in tax preparation and related fees in January and February, just a 2 percent increase over the same period a year earlier. And while its average fee-per-client rose 6.2 percent, to $153.20, the total number of clients served declined 0.9 percent during the two-month period, to 12.1 million.

Earlier this week, Block's Parsippany, N.J.-based rival, Jackson Hewitt Tax Service Inc., said it had prepared 2.7 million tax returns this year through the end of February, up 11 percent from a year earlier.

Also this week, New York's Attorney General filed a $250 million fraud suit against the company, accusing it of steering hundreds of thousands of clients to buy into unfair investment retirement accounts. Shortly after the suit was announced, ubiquitous plaintiffs' law firm Lerach Coughlin LLP piled on, filing a strikingly similar complaint in Missouri federal court. The Lerach Coughlin lawsuit is requesting class-action status and seeks an unspecified amount of actual and compensatory damages, as well as injunctive relief.

Block was in the news last month, disclosing that it had made errors on some of its own returns and cutting its forecast for 2006 earnings, saying a January software upgrade, and the resulting technical snafus, had driven away as many as 250,000 customers. And California's Attorney General also filed a lawsuit against the company, saying its refund anticipation loan program preyed on unsavvy customers.