Class Action Lawsuit Claims H&R Block Offers Military Members ‘Payday-Style’ Loans with Illegal Interest Rates

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A proposed class action lawsuit claims that H&R Block offers tax return advance loans to active-duty military service members at illegally high interest rates.

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According to the 31-page lawsuit, H&R Block and co-defendants Pathward N.A. and Emerald Financial Services offer two short-term “payday-style” loans, called the Refund Advance Loan and the Emerald Advance Loan, to active-duty military service members with high fees and waivers that violate the Military Lending Act (MLA), which was designed to protect military borrowers from predatory lending practices.

The MLA, the suit explains, provides that a creditor cannot extend consumer credit to active-duty military service members or their dependents with a military annual percentage rate (MAPR) of over 36 percent. Per the complaint, the MAPR explicitly includes “application fees, participation fees, fees for ancillary products required to obtain credit and fees imposed in connection with a transaction for consumer credit.”

Per the filing, the H&R Block Refund Advance Loan product is marketed as a way for borrowers to access tax refund money prior to receiving their refund and is specifically represented as having no fees and a zero-percent annual percentage rate (APR). The complaint claims, though, that in order to obtain a Refund Advance loan, borrowers must have accounts with the loan originator, Pathward—including prepaid debit cards or refund transfer accounts, which each come with their own fees. The suit relays that military members who take out a Refund Advance loan are routinely charged a $39 refund transfer fee and a $25 check disbursement fee (if the funds are issued by check).

According to the case, these indirect fees are incurred as a condition of receiving the Refund Advance loan and must be included in the MAPR calculation under the Military Lending Act. When annualized over the few days or weeks during which the Refund Advance loan is active, the effective MAPR far exceeds the 36-percent limit established in the MLA, especially for advances of smaller amounts, the filing claims.

Unlike the Refund Advance loan, the complaint says, the H&R Block Emerald Advance Loan product (also originated by Pathward and managed by Emerald) is not promoted with “no interest” claims and instead has a stated APR of about 35.9 percent. However, the lawsuit claims that the loan product’s extension to MLA-covered people is still illegal as the loan money must be received through Pathward-issued accounts—either an H&R Block Emerald Prepaid Mastercard or a Spruce Spending Account—both of which impose additional fees that raise the MAPR well beyond the 36 percent limit.

Additionally, the suit alleges that both the Refund and Emerald advances come with illegal waivers attached. Specifically, the case says, their terms contain mandatory arbitration clauses and require borrowers to waive the right to participate in class action lawsuits (and jury trials, in the case of the Emerald Advance loans), even though the MLA specifically prohibits creditors from requiring arbitration or class action waivers.

The H&R Block class action lawsuit seeks to represent anyone covered by the Military Lending Act—meaning active-duty military service members and their dependents—who entered into an agreement with the defendants to use an Emerald Refund Loan or similar product that included any finance charges, including refund transfer or check disbursement fees or who entered into an agreement with the defendants that included a class action waiver, jury trial waiver or arbitration agreement, or otherwise “imposed onerous legal notice provisions in the case of a dispute.”

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