New York Attorney General Eliot Spitzer has sued H&R Block for fraudulently marketing more than 500,000 individual retirement accounts because it didn't disclose hidden fees. Further, 85% of these customers actually lost money in these IRAs because the interest rates were actually lower than the fees they paid, Spitzer's lawsuit, filed with the New York Supreme Court in Manhattan, charged.
"The conduct is particularly appalling because many of those hardest hit were working families who struggle to save," Spitzer said. "Instead of providing these families with accurate information that would have allowed them to make informed choices, H&R Block steered them into retirement accounts that actually shrank over time."
Since 2001, H&R Block marketed its "Express IRA" as offering "great rates" and "a better way to save," according to Spitzer's office. But when 150,000 customers discovered that they were losing money, they closed their accounts, incurring additional fees and $6 million in tax penalties.
Spitzer's lawsuit includes internal e-mails between a branch officer expressing his concern over the product to the firm's chief executive officer, Mark Ernst, as well as an internal report underscoring a product manager's further concerns.
The tax-preparation giant has rejected the allegations. "Make no mistake--we believe in the Express IRA product and are proud of the opportunities it presents for our clients," Ernst said in a statement. "At a time when the country's personal savings rate has declined to minus 0.7%, we've helped 596,000 of our clients begin saving for their future, and more than 40% of them had never saved before."