An Illinois district judge denied approval of a settlement that would have ended litigation against tax prep giant H&R Block related to refund anticipation loans, the company disclosed.

In a May 27 filing with the Securities and Exchange Commission, the company said that a U.S. district judge for the Northern District of Illinois denied a motion for preliminary approval of the proposed settlement, terminating the agreement.

"The parties to the litigation will be returned to their status immediately prior to the execution of the Carnegie Settlement Agreement as if the agreement had never been made," the company said.

The proposed agreement, reached earlier this month, would have settled a 1998 Chicago class-action lawsuit related to refund anticipation loans, ending all RAL-related class-action litigation against Block.

The proposed settlement would've covered all RALs 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 included more than 28 million consumers and covered more than 55 million individual RAL transactions.

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

The 1998 lawsuit 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.

District Judge Elaine Bucklo had refused to approve a $25 million cash settlement agreement in the case back in 2003.

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