H&R Block and HSBC Taxpayer Financial Services Inc. reached a tentative agreement to settle a 1998 Chicago class-action lawsuit related to refund anticipation loans.

Block said that the settlement, if approved, would end all RAL-related class-action litigation against it. The 1998 suit alleges that Block received referral fees from the issuing bank and misled customers about finance charges on the controversial RALs, which provide access to fast cash by providing loans against a taxpayer's anticipated refund amount. Block settled a separate RAL class-action suit in Texas in 2003.

The proposed settlement, filed in an Illinois District Court, would cover all refund anticipation loans that were funded by various lenders through H&R Block, as well as many RALs funded by Beneficial National Bank, Household Bank f.s.b., and various lenders with which HSBC Taxpayer Financial Services had agreements through other tax preparers from 1987 through the end of the 2005 tax season. The settlement class would include more than 28 million consumers and cover more than 55 million individual RAL transactions.

The proposed settlement provides for $110 million cash and $250 million in H&R Block tax preparation coupons to be distributed to all class members. It would also require H&R Block to continue to use a six-step disclosure process outlining all tax filing options and costs and the time required to receive refunds with each option for RAL clients at Block offices.

The settlement must be approved by District Judge Elaine Bucklo. Bucklo refused to approve a $25 million cash settlement agreement in the case back in 2003.

The Kansas City, Mo.-based company said that if the settlement is approved, it would record an after-tax charge of roughly $38 million, or 23 cents per diluted share, for the fourth quarter.

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