California's Attorney General has filed a lawsuit against H&R Block in an attempt to halt the tax prep giant's loan program, which allows the company to take a percentage of clients' tax refunds in exchange for an advance.

Attorney General. Bill Lockyer filed suit in San Francisco Superior Court, noting that more than 1.5 million Californians have received tax refund loans through Block since 2001. A number of other suits have been filed around the country against Block, saying that the loan practice is unfair, especially because many low-income filers accept the offer.

Tax refund loans account for about 4 percent of Block's annual revenues. According to the company's annual report, in the 2004-05 fiscal year, Block recognized a pretax profit of $101.3 million on revenues of $182.8 million generated from the loans across the country.

Block and its banking partners receive a percentage of customer tax refunds for fronting the loan. In the suit, Lockyer alleges the company misleads its customers about the costs of the short-term loans, and can impose fees that translate into interest rates of more than 500 percent.

Block has said that the loans help its customers and adheres to all laws.

Lockyer wants Block to pay $20 million in fines in addition to refunding customers for its alleged abuses. He will also ask for a court order preventing the company from offering the loans in California.

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