Spitzer is right about Hrblock, block is in the wrong

Discussion in 'Wall St. News' started by mahram, Mar 15, 2006.

  1. Hrb is completely in the wrong about their express accounts. they know they basically took away all the interest, and then some with their fees. So why doesnt hrb just pay up and say sorry, instead of wasting time.

    'Express' deception?
    Own an H&R Block IRA? What the lawsuit means for you
    E-mail | Print | | Disable live quotes By Andrea Coombes, MarketWatch
    Last Update: 2:50 PM ET Mar 15, 2006

    SAN FRANCISCO (MarketWatch) -- More than half a million eager savers signed up for H&R Block's Express IRA product in recent years, and plenty of them are probably wondering how to unravel that decision now.
    With its steep fees and low interest rates, H&R Block's retirement-savings product generally depleted account balances instead of building nest eggs, New York Attorney General Eliot Spitzer charged in a lawsuit filed Wednesday. See full story.
    The product's fees exceeded the interest paid for 85% of Express IRA customers overall, the lawsuit said.
    Express IRAs include a $15 setup fee, a $15 "recontribution" fee (now discontinued) and a $25 termination fee (formerly $75), while the accounts earned interest rates that often hovered at or below 1%, according to the lawsuit. The product's only investment option: a money-market account.
    "The goal [of the lawsuit] is to make retributions to customers who were harmed," said Juanita Scarlett, a spokeswoman in Spitzer's office.
    For its part, H&R Block (HRB : H&R Block, Inc.
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    HRB20.89, -1.11, -5.0%) said that it refutes the lawsuit. "Make no mistake -- we believe in the Express IRA product and are proud of the opportunities it presents for our clients," Mark Ernst, the company's chairman and chief executive, said in a statement.
    "At a time when the country's personal savings rate has declined to minus 0.7 percent, we've helped 596,000 of our clients begin saving for their future, and more than 40 percent of them had never saved before," he added.
    What should consumers do?
    Consumers who currently own an Express IRA may be prompted to close it given the day's headlines, but that may not be the best move.
    You might want to wait and see, according to Sarah Ludwig, director of the Neighborhood Economic Development Advocacy Project, a New York-based nonprofit working for fair financial-services access for low-income residents.
    "Hopefully, there will be full restitution through the lawsuit, and hopefully people who have one of these will get compensated for the financial harm this has caused them. If you have one of these right now, pay attention to what's happening in the lawsuit," she said.
    NEDAP is not a party to the lawsuit, but did participate in the New York attorney general's office press conference on the topic Wednesday.
    One important consideration before rushing to close your account: The 10% tax penalty that applies to most premature IRA fund withdrawals; plus, some distributions are taxed at ordinary income-tax rates.
    Another consideration: Interest rates have been rising. The interest rate on the Express IRA's money-market account rose three times in 2005, from 1% to 2.5% by the end of the year. The rate is now 3%, H&R Block said on its Web site. See the statement.
    Before you make a decision based on the headlines, consider your full financial picture and the reasoning you used to justify purchasing the product. For instance, taxpayers at certain income levels enjoy a tax break called a saver's credit. See this IRS page for more.
    Still, the lawsuit said, "even taking into account as a 'gain' the tax benefits of opening an IRA, analysis of the accounts opened in 2002 -- the year when the Express IRA was first available nationwide and for which the most data is available -- shows that as of now, about 79% of H&R Block customers who opened accounts in 2002 have lost money."
    Fees outweigh benefits
    Spitzer's statement offered examples of two New York state residents: A 32-year-old Albany resident with taxable income of $17,847 made a one-time contribution of $300 to an Express IRA in 2002. Over four years, the investment earned $10.29 in interest while incurring $45 in fees.
    A 68-year-old Brooklyn resident with taxable income of $25,421 made a one-time contribution of $300 to an Express IRA in 2004. The consumer paid a $15 account opening fee, a $10 account maintenance fee, and a $25 closing fee when the account was closed after 18 months. The account earned $5.18 in interest.
    Andrea Coombes is a reporter for MarketWatch in San Francisco.
  2. Strange they are picking on some penny ante thing like this, when I could find 100 offences by other co's that are a lot more heinous.
  3. mrmoose


    "Strange they are picking on some penny ante thing like this, when I could find 100 offences by other co's that are a lot more heinous."

    true but someone is running for govener and wants to seem as though he is defending the little guy.
  4. Good for Spitzer. What's his position on housing development though?
  5. keyser1


    so this should go unpunished because there are worse companies in the world? thats great logic: if someone burned down your house would say "don't worry officer, you go catch some real criminals, this arsonist is small potatoes compared to the rapists and killers still on the loose"??? Probably not eh?

    One thing though, I bet most of H&R Block's customer base is clueless to begin with, so the fact that they'd sign up for an express ira that puts long term money in a money market account (even if it had no fees) isn't suprising. BTW the reason why I say they're clueless is because the vast majority of them are way overpaying to get their taxes done at H&R when it could be done for less than half by an independant tax accountant.
  6. Star


    Isn't New York Attorney General Eliot Spitzer buds with Jim Cramer?
  7. Where do you think he got the tip-off? :eek:
  8. Uh, let him go after all the brokerages that removed money market funds from the sweep option, and replaced it with low paying options.

    100's of millions lost by customers. This Block thing is penny ante.
  9. Read between the lines, HRB's fees are reasonable and completely fair. They are all disclosed, even if they were in the fine print. Are they supposed to charge nothing for the IRA service and become a charity?

    HRB caters to the lower classes, those people, and I hate to say this, are below average intelligence. A decent enough investment would have made it worthwhile and more than cover the fees. The idea was to get them saving and it is totally reasonable if HRB wants to make money from it and get recurring service revenue. Obviously these people have no idea about how investments work and the fact that there are transaction costs in almost every single type of investment. There are a few exceptions, like internet savings banks & CDs but that is about it.

    Im not too sure on the "79%" of HRB's clients losing money and I think that can and will be debated. These people are obviously throwing in low sums that have little chance of covering the fees. The idea was to have these people grow their accounts and make it work, I really doubt HRB meant for these clients to throw in low sums that would get drained. Not for nothing, but if HRB is starting to get these people to save, then they are doing something better than the government & Spitzer. There are no guarantees with IRAs anyway, HRB does not have to make sure everyone makes money and they certainly have no responsibility to reach into their pocket and sacrifice profits to make sure noone loses any money. HRB is a publicly traded corporation, they have a legal duty to make profit, if they were to do these IRAs at a loss simply to make their clients covered the fees with the interest, they would be in clear violation of their legal duties.

    Most IRAs have early withdrawal penalties so the account closing fee is legit. And look at the examples, it's just pathetic little sums that HRB can even be liable for. $15+$10= wow a whooping $25 dollars of which $20 is not covered by the interest. But guess what, HRB can at least charge their raw cost so essentially they may at best owe the customer smth like $10. The company has a bil of cash on hand, I just do not see how serious this can be to their finances and IMO, this will have little effect on their reputation because it is essentially a petty issue. $250 mil, yeah good luck with that one Spitzer.

    I'm guessing Spitzer thinks HRB is an easy target as he is too much of a wuss to go some real prosecuting. He must believe that he can run HRB down or maybe there is some personal BS behind the scenes. I think he is making a mistake even if he wins the case cause HRB is not an upper class company but a lower class company. This isn't exactly putting him as the people's champion, he is supposed to go after the rich. He is trying unsuccessfully paint HRB as a scumbag company as if they stole customer funds when all they did was sell a product and charge reasonable fees. Probably most of their agents did not press the concept of transaction fees enough but I think it's ok since they are trying to SELL the product.
    Where HRB could be found to be wrong is if Spitzer can prove that HRB purposely made a decision to start pumping up their IRA fully knowing that majority of the clients will never put in enough funds to cover the fees. That's a tough one for Spitzer, as HRB clearly disclosed the fees and then some.

    I'm no law expert but I will be a buyer of HRB at $20 bucks and maybe even up to $25. Would love to see this stock touch $15. I called MRK and PFE as buys during their spectacles but missed the entries by days prior to the rips. It's all a big dramatic production, the pharma companies were just running business as usual with occasional hiccups. HRB is just doing what they do and I personally feel they are doing much more good than bad. I would rather have some schmoe lose $15 bucks on his $500 IRA instead of going out and wasting the money on frivilous goods. At least he will start saving and hopefully keep saving, quickly defeating the small fees and building a real investment.