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WHEREAS:
H&R
Block, Inc. (“H&R Block”), through a partnership
with Household Tax Masters, Inc. and Imperial Capital
Bank, provides short-term consumer loans to taxpayers in
the form of refund anticipation loans and refund
anticipation checks (collectively, “RALs”).
RALs are short-term loans issued to consumers for
the maximum amount of their expected federal tax refund.
Data suggests that RALs providers, including
H&R Block, target low-income individuals and
particularly recipients of the EITC with this product.
For example, though they are the least able to
afford the costs, in 2003 79% of consumers who took out
RALs were low-income;
We
believe that there is an appropriate role for short-term
consumer loans in the marketplace when such lending is
done responsibly;
However,
we believe that the RALs offered by H&R Block do not
constitute responsible lending because, in our opinion,
H&R Block charges unreasonable interests rates (with
APR’s from 150% to 400%) and high fees for extremely
short-term loans that provide little economic value to
borrowers;
Because
of the high costs and limited economic value of RALs, we
believe that these loans are predatory;
Further,
federal and state regulators also recognize RALs as
predatory. For
example, the California Attorney General recently brought
an action against H&R Block for its RALs lending
practices. Further, the FDIC has recently indicated that it did not see
any economic benefit to consumers from these loans.
In our
opinion, this practice is not only detrimental to
consumers, but also costly for H&R Block shareholders;
As
described in H&R Block’s 2005 Form 10-K, it has been
the defendant in numerous lawsuits related to its RAL
practices, including those with claims that RAL interest
rates are usurious or unconscionable, that RAL activities
constitute a breach of state laws on credit service
organizations, and that RAL activities constitute unfair
or deceptive practices;
Some of
these cases have cost H&R Block substantial amounts of
money. For
example, one such case recently settled for $43.5 million;
Further,
as described in the Form 10-K, future litigation and
regulatory proceedings related to RALs could have a
material adverse effect on H&R Block’s financial
condition;
RESOLVED:
Shareholders
request that the Board of Directors implement a policy
mandating that the Company cease its current practice of
issuing high-interest RALs, develop higher standards for
any future issuance of RALs, and ensure that if the
Company issues RALs in the future, such RALs are issued
with an interest rate and
accompanying fees that are reasonable and in
compliance with all applicable laws.
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