H&R Block CEO Mark A. Ernst defended his company's "Express IRA" product and accused New York State Attorney General Eliot Spitzer of launching an "unfair attack" on his company, in a letter to the Wall Street Journal published Friday.
Spitzer filed a $250 million lawsuit against the Kansas City, Mo.-based company in New York State Supreme Court in Manhattan last Wednesday, claiming that H&R block fraudulently marketed its product as a savings tool. In fact, Spitzer claimed, clients actually lost money due to high fees.
"The attorney general's office has ignored the volumes of positive data and analysis we have provided about the Express IRA and its related benefits," Ernst wrote.
The lawsuit charges that 85% of the 500,000 Express IRA account holders actually lost money, because interest rates were lower than fees. Ernst counters that the average savings of $200 far exceeds the average loss of $22 per account.
The lawsuit asserts that 150,000 people lost money, incurring added fees and $6 million worth of tax penalties.
"These declines typically resulted when clients closed their accounts quickly or made only one-time small deposits to their accounts," Ernst wrote. "Contrary to the attorney general's claim, Express IRA clients receive clear and comprehensive information not only about the benefits and advantages of tax and retirement savings, but also product fees, with a strong focus on how they can avoid or minimize those expenses."
Ernst added that claims of below-average interest rates were unfair, as interest rates industry wide have been low, especially since 2001, the year the Express IRA was introduced. H&R Block has, in fact, lost money on the product, but continues to offer it in hopes of continued growth, according to Ernst.
Ernst also said that he was surprised by the magnitude of Spitzer's suit. Through what he described as a "long process," the attorney general has asked H&R block to settle out-of-court on different occasions for amounts ranging from $30 million to $60 million.
"We refused because the attorney general is simply wrong," Ernst wrote. "Needless to say, this week's announcement of a $250 million suit against us came as a surprise--and, for me personally, an intense disappointment.
"While there is no such thing as a guaranteed return-on-investment, I believe that we are clearly providing a valuable service for a segment of Americans who need help harnessing a financial opportunity that many of them have had difficulty accessing until now," wrote Ernst.
Approximately 42% of H&R Block's Express IRA account clients had never before opened any type of savings account, he added.
"No one wastes money when they lock it away for retirement," Ernst wrote. "And once they get started, they are far more likely to continue to save."
The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.