H&R Block customer claims fraud in federal class action

By Steve Gonzalez | Apr 26, 2006

A class action complaint lodged against H & R Block in federal court claims the tax preparer fraudulently marketed and guided customers into purchasing Express Individual Retirement Accounts.

Representing the class, Pascha Perkins of Belleville claims H & R Block marketed Express IRAs without regard for whether they were suited for the person who was purchasing them and without adequate disclosure of the significant fees associated with them.

"Because of the inception and annual maintenance fees associated with the Express IRAs, most of the customers actually lost money on these accounts," the complaint alleges.

"In stark contrast, H&R Block's misconduct allowed it to reap millions of dollars in profit."

Perkins claims she and the class have suffered monetary injury by virtue of the alleged scheme implemented by H & R Block and it relied on its position of trust and fiduciary relationship as a tax advisor to market the IRAs to its low and moderate income customers, without disclosing the fees or low return.

"…Plaintiff and class members often lost money and paid more in fees to H & R Block than they earned in interest on their investment," the complaint states.

Represented by Michael Flannery of Carey & Danis, Jeffrey Lowe of St. Louis and Evan Buxner of St. Louis, Perkins claims federal court has jurisdiction over the case pursuant to the Class Action Fairness Act because there is complete diversity and because the amount in controversy exceeds $5 million.

According to Perkins, the majority of H & R Block's revenue comes from tax preparations, but in recent years it has attempted to distinguish itself from competitors by allowing its tax preparers to assume financial advisory roles.

H & R Block began selling the IRAs in 2001 as a pilot program and marketed them nationwide in 2002.

Perkins claims that unlike most IRAs, the only investment option in the Express IRA is a money market account, which typically has an interest rate that increases at a rate less than the rate of inflation.

"The interest rate often does not cover the fees imposed by H & R Block for the Express IRA," the complaint states.

She claims that H&R Block improperly marketed the IRAs based on generic, standardized scripts written for its tax preparer that were grossly inappropriate given the complex financial and tax implications of an IRA.

"Defendants failed to properly train its tax preparers to explain and advise consumers about the Express IRA," the complaint alleges.

Perkins claims she and other class members were charged numerous fees by H & R Block for the IRA.

She also claims that although H & R Block's internal studies indicated that the Express IRA interest was too low in relation to its fees, it fraudulently and maliciously marketed the Express IRA to its clients claiming that it had "great rates" and was a "better way to save" even though top-level employees knew that most customers were actually losing money.

The class will consist of, "All persons and entities in the United States who purchased Express IRA accounts from H & R Block."

Perkins claims the class "is so numerous" it may be impracticable to bring all members of the class before the court, and it is believed to be thousands in size.

"In some instances, class members may be unaware that a claim exists on their behalf," the complaint reads.

Perkins claims that the identities of Express IRA customers are readily identifiable through H&R Block's computer and paper records.

She also claims that she will fairly and adequately represent the members of the class and has no interests that are antagonistic to the claims of the class and also vows to vigorously pursue the claims of the class.

According to the complaint, there are numerous and substantial questions of law and fact common to all members of the class which will control in this litigation and which will predominate over any so-called individual issues which include whether H & R Block:

  • Engaged in fraud and deception un the marketing and sale of the Express IRA
  • Breached its fiduciary duties to Perkins and the class;
  • Violated the Missouri and Illinois common law and statutory laws;
  • Injured the class, and if so, the proper measures of damages; and
  • Whether Perkins and the class are entitled to declaratory and/or injunctive relief as a result of H&R Block's conduct.

    Perkins and the class are seeking a judgment certifying this action as a class action, an award for damages, including actual, compensatory and punitive damages, injunctive relief, pre and post-judgment interest and attorneys fees and costs of the suit.

    The case has been assigned to Chief District Judge G. Patrick Murphy and Magistrate Judge Clifford Proud.


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