H&R Block Fined For Deception

A federal judge barred H&R Block, the nation's largest income tax preparer, from using misleading phrases to advertise its "Rapid Refund" loan program and ordered it to pay more than $500,000 to an upstart rival for using deceptive advertising in its refund anticipation loan program.

Block has been sued before over its advertising for refund anticipation loans, in which tax filers receive bank loans for the amount of the refund they expect to receive from the Internal Revenue Service. But the financial institutions can charge fees or interest.

U.S. District Judge Raymond Jackson in Norfolk accused H&R Block of deliberately and maliciously using deceptive advertising for a no-charge, refund anticipation loan to draw customers in the Hampton Roads area just as a competing tax preparation service was launching its business there.

"We feel that this is a victory not only for Liberty Tax Service, but also for taxpayers who didn't fully understand the terms of this loan product because they weren't properly disclosed," said Lenny Holt, Liberty's chief operating officer.

Jackson ordered H&R Block to pay Liberty Tax Service $507,477, representing a portion of Block's profits in Hampton Roads in 2000.

Block advertised similar loans last year to customers in California, Iowa, New York, and Ohio, but the company said it has discontinued the product because it was not profitable.

"This case is about a type of loan product that we no longer offer...and ads that we no longer use," the company said in a statement Wednesday.

In 1993 in Connecticut, H&R Block agreed to change its advertising for refund anticipation loans after the state consumer protection agency complained.

The company's "past advertising conduct and prior notice regarding the use of the term 'refund"' along with an internal company report on the program indicate the company acted in "bad faith in repeating such advertising during the 2000 tax season," Jackson wrote in his ruling released Monday.

H&R Block "strongly disagrees with the judge's finding of maliciousness" and will appeal, Linda McDougall, a spokeswoman for the Kansas City, Mo.-based company, told The New York Times.

The company filed a motion asking that it continue to be allowed to market its "Rapid Refund" electronic filing program, a request Jackson granted on Tuesday on the condition that Block's advertising clearly discloses the difference between loans and refunds.

Liberty Tax service operates 500 offices in the United States and Canada. H&R Block operates 10,000 offices in the United States, Canada, Australia and the United Kingdom.

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