At the peak of tax-filing season, when millions of consumers are still considering their method of filing, the Federal Trade Commission has set its sights on Intuit, Inc., one of the largest online tax-filing services.
On March 28, 2022, the FTC filed an administrative complaint against Intuit, alleging that the company’s marketing of TurboTax as a free tax-filing service misleads consumers because the free service applies only to some, while many end up getting hit with charges at the time of filing.
In a press release, Samuel Levine, director of the Bureau of Consumer Protection at the FTC, stated that Intuit’s advertising is a “bait-and-switch” tactic that a court should immediately halt to protect tax-paying consumers. The FTC simultaneously filed a complaint for a temporary restraining order and preliminary injunction against Intuit in federal court in the Northern District of California, seeking to immediately enjoin it from advertising its tax-filing product and service, TurboTax, as free.
The FTC alleges that Intuit’s ad campaigns violated the FTC Act because they contained misleading claims that the filing service was free: “at least your taxes are free,” “Free Guaranteed,” and use of “dialogue” between actors in which the word “free” is essentially the only word spoken.
But according to the FTC, TurboTax is not actually free. Instead, it is allegedly free only for consumers who file “simple” tax returns—returns using certain tax forms—and Intuit does not adequately disclose this to filers of non-simple tax returns (who must upgrade to a paid TurboTax service to complete their filings) until after the filer invests time and effort inputting personal and financial information.
On April 4, 2022, Intuit filed its opposition to the FTC’s motion for a temporary restraining order and preliminary injunction, arguing that its advertisements contain disclaimers that the free version is available only for certain filers. The FTC, however, contends those disclaimers are inadequate to cure the alleged misrepresentation because they:
- Are disproportionately small compared with the prominent text emphasizing that the service is free.
- Appear for just a few seconds as compared with the length of the commercials, which aired in 15-, 30-, and 60-second versions.
- Are in writing only, often in font color similar to the background color, and are not read by a voiceover.
Intuit also argues that its high customer satisfaction scores and above-average customer retention indicate its customers are not being deceived by Intuit’s “free” marketing campaign. The FTC counters that high customer satisfaction and retention are not indicia of a lack of deception, citing other possible reasons for such results, including dissonance reduction (i.e., “I paid to use TurboTax, so I must have valued it”); high perceived switching costs; status quo bias (i.e., even for experiences with which consumers associate negative emotions, like tax filing, they are likely to maintain the status quo); and attribution of unexpected costs to consumers’ own tax situation rather than to Intuit’s business practice.
Furthermore, although Intuit claims it notifies consumers that they must upgrade to a paid product before consumers actually pay for the product, the FTC characterizes Intuit’s advertising as a “deceptive door-opener,” arguing that “companies may not induce a first contact through deception, even if they subsequently cure the deception.”
The Intuit enforcement action confirms that the FTC is taking pricing claims very seriously. Companies that wish to advertise their products or services as free would do well to remember that “free” must actually mean free—for everyone. If it doesn’t, the advertising must clearly and conspicuously disclose precisely what “free” means.
A hearing on the FTC’s motion for injunctive relief is scheduled for April 21, 2022.
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