Intuit Will Pay $141 Million in State Attorney Generals’ Settlement Over Deceptive TurboTax Advertising | Venable LLP

“Free” must mean free?

Last week, the attorneys general for all 50 states and the District of Columbia announced a settlement with Intuit, Inc., the owner of TurboTax, which will require the company to hand over $141 million to consumers as restitution for allegedly tricking consumers into paying for tax-filing services when they qualified for free tax-filing services.

Recently, we wrote about the Federal Trade Commission’s legal action against Intuit for its advertisements regarding “free” tax-filing services. In that action, the FTC sought to definitively resolve that very question. As part of the last week’s settlement agreement, Intuit will cease its advertising campaign promoting its “free, free, free” services in addition to paying the hefty restitution sum. The state settlement essentially ended the FTC action as well.

While the states’ investigation overlapped with the FTC’s action Intuit’s alleged bait-and-switch advertising (ie, representing the service concerning is “free” but later requiring an upgrade to a paid version), their investigation also had another focus: “dark patterns ,” which refers to a digital design feature that is intended to subtly influence a consumer’s online decisions.

Until 2021, Intuit offered a free filing version of TurboTax through the IRS Free File Program for taxpayers earning roughly less than $34,000 and for military members. Intuit also offers its “TurboTax Free Edition” for taxpayers with “simple” tax returns.

The states’ investigation, led by New York and Tennessee attorneys general, found that since 2016 Intuit engaged in deceptive and unfair practices through its use of digital “dark patterns” that limited eligible consumers’ participation in the IRS Free File Program—which Intuit called “Freedom Edition”—and instead steered them to TurboTax’s “Free Edition,” which ultimately required many consumers to upgrade to paid services.

Specifically, the alleged states that Intuit used the product names “Free Edition” and “Freedom Edition,” knowing the similarities confused consumers. The states alleged that Intuit chose the name “Free Edition” for its own product, despite the fact that the product is free for only roughly one-third of taxpayers (ie, those with “simple” tax returns), but the name “ Freedom Edition” for the IRS Free File Program, “which does not indicate that it is free despite being part of a program that is free for 70 percent of taxpayers.”

According to the states, from November 2018 to April 2019, Intuit blocked the landing page of its Free File product, “Freedom Edition,” so that it would not be listed by internet search engines. Moreover, Intuit used paid search terms to direct consumers searching for the IRS Free File Program to Intuit’s “Free Edition” and paid products.

According to the settlement, roughly 4.4 million consumers will be eligible for restitution. Intuit will also have to enhance the disclosures in its advertising and marketing of free products, including, but not limited to, disclosing material limits on a consumer’s ability to use a free product, eligibility requirements, and that not all taxpayers qualify for the free product . Finally, Intuit voluntarily withdrew from the IRS Free Filing Program in October 2021, and the agreement prohibits Intuit from seeking to rejoin or participate in the program.

What does the state settlement mean for the FTC case? On April 22, 2022, the Northern District of California denied the FTC’s emergency motion for a temporary restraining order and preliminary injunction, citing three reasons:

  • Tax Day had already passed, so “[a]ny prospective harm is therefore attenuated”
  • Intuit had removed several plausibly deceptive advertisements even before Tax Day
  • The FTC has brought an administrative proceeding against Intuit with a hearing set for September 14, 2022

Additionally, on May 4, 2022, Intuit filed a motion in the administrative FTC proceeding to withdraw the matter from adjudication on the basis that the settlement with the state attorneys general had resolved the issue. FTC counsel did not register an objection, and, two days later, Intuit’s motion was granted, and an order was issued withdrawing the matter in its entirety, ending the FTC matter.

The case serves as a good reminder of the scrutiny law enforcement places on the word free. Furthermore, that it was the state AGs, and not the FTC, that ultimately recover monetary relief for consumers highlights the changed circumstances resulting from the Supreme Court’s curtailing of the FTC’s ability to use Section 13(b) to obtain monetary relief.

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