Kansas City

October 6, 2005
Gene Meyer

Five consumer groups urged federal
regulators Wednesday to reject H&R Block Inc.’s application to open a
savings bank that the activists contend could be used to gouge

Block said it wanted to open the
savings bank, which would be based in Kansas City, to provide a low-cost banking
alternative to its tax service clients and others who currently do not use
traditional banks much.

consumer groups, led by the California Reinvestment Coalition in San Francisco, fear that
opening a bank would make it easier for Block to market costly tax refund loans
and subprime home mortgages in low-income neighborhoods. They also contend that
a planned single bank in Kansas
City would allow Block to pull clients’ money out of
communities throughout the nation without reinvesting some of it as federal law

H&R Block wants to be a bank, it should get out of the business of brokering
predatory refund anticipation loans to working poor families,” said Chi Chi Wu,
a staff attorney with the National
Consumer Law Center,
which also is a member of the coalition that addressed Office of Thrift
Supervision regulators Wednesday in Dallas.

should be providing low-cost savings accounts so families can get their refunds
quickly and safely,” Wu said.

Community Reinvestment Association of North Carolina, Inner City Press/Fair
Finance Watch and the Woodstock Institute also

Block denies any intention to gouge
tax service clients or other customers.

“The plans we’ve submitted to the
Office of Thrift Supervision are very specific,” said David Gunasegaram, a Block

have no plans to offer refund loans through the bank. Internal Revenue Service
regulations prohibit us from originating them. We have no plans to make subprime
loans,” Gunasegaram said.

Block has made refund loans
available through its tax offices for years, and many clients have filed
class-action and other lawsuits over fees and other loan terms. The company has
successfully defended some of the complaints and settled others, including a
Texas lawsuit
in 2003 for nearly $44 million.

while the planned Kansas City bank would not make subprime loans, Block’s Option
One mortgage unit, which generates significant income and revenue for the
company, specializes in lending to borrowers with checkered credit

Company officials have declined to
share many details of the planned bank until the OTS and other regulators
approve the proposal. Block’s current charter application, filed in May, is the
third the company has filed since 2002. Block withdrew the previous two
applications to re-evaluate them and make sure the proposals best fit both
Block’s needs and its clients’, Gunasegaram said.

Chairman Mark Ernst told securities
analysts in June that the company had applied for a charter for a single Kansas
City bank to provide both nontraditional low-cost banking services for clients
and a depository for customers’ funds.

plans represent a huge expansion for Block. The company already tends more than
$1 billion of its customers’ money, which includes funds in investment accounts
at its financial services arm, mortgage deposits generated by its home loans and
retirement savings in individual retirement accounts that tax customers have

Block currently relies on other
banks to help hold customers’ deposits. Having a charter, and consequently the
ability to deal exclusively and directly with depositors, would allow the
company to keep more of the income that business generates instead of sharing it
with partners.

Shares in Block closed Wednesday at
$23.52, down 22 cents.

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