The Federal Trade Commission has issued a ruling against Intuit with regard to TurboTax, a popular tax online preparation service, finding that Intuit violated the FTC Act by engaging in deceptive advertising practices. The FTC issued a Complaint against Intuit in March 2022, due to the prominent “free” messaging used for TurboTax services, despite the small fraction of users eligible to use TurboTax services at no cost. Chief Administrative Law Judge D. Michael Chappell issued an Initial Decision in August 2023, which held that Intuit engaged in deceptive advertising in violation of the FTC Act. Intuit appealed.
Intuit offers several financial service brands, including TurboTax. TurboTax is the most widely used “do-it-yourself” online tax preparation service. For years, Intuit has advertised that TurboTax is “free” through television commercials, online ads, email marketing, the TurboTax website, and several other mediums. However, the free version of TurboTax is limited to a narrow subset of consumers who have simple tax returns, defined by Intuit to include or exclude specific tax situations. Ineligible consumers are prompted to pay a fee to upgrade to a paid version of TurboTax after entering disqualifying information. Intuit argued that its “free” messaging in advertisements was modified by references to the free edition of TurboTax, disclaimers that applied only to “simple tax returns,” and messaging that directed consumers to the website for more information.
First, the Commission addressed whether Intuit’s advertising is deceptive. The Commission found that on its face, reasonable consumers would believe from Intuit ads that they can file their taxes for free with TurboTax. Specifically, Intuit’s advertisements that used taglines such as “free, free, free,” “at least your taxes are free,” and “that’s right, TurboTax Free Edition is free,” expressly or strongly implied to consumers that they could file taxes for free using TurboTax. Further, the Commission rejected Intuit’s disclosure argument, finding that the additional elements in Intuit’s advertising failed to modify the overall conveyed message. The Commission relied on the fact that a portion of Intuit’s advertisements did not include the additional elements, and many advertisements did not reference a specific TurboTax product, instead referencing Turbo Tax free, which is not a product, or Absolute Zero, a promotional offer.
In addition, the Commission found that Intuit’s disclaimers were too inconspicuous to disclose anything because the “simple returns” and “see details” or “see if you qualify” disclosures were in small print, at the bottom of the screen, and appeared in a rapid cadence. Lastly, the Commission analyzed the “simple tax returns only” language, and found it ambiguous due to the common meaning of simple as easy and evidence that consumers did not understand the disclaimers. The Commission emphasized that when using “free” language, disclaimers must be clear and conspicuous.
The Commission issued a Final Order that prohibits Intuit from using “free messaging” unless the goods or services are free to all consumers, or Intuit meets disclosure requirements listed in the Final Order. The Final Order also prohibits Intuit from making additional misrepresentations.
Important Takeaways: The Commission noted how powerful “free” messaging is in advertising. “A ‘free’ message is extremely powerful and that, as a result, the need for an advertiser to provide clear and conspicuous disclosures of any limitations or conditions is particularly strong.” Companies should exercise caution when using “free” messaging in advertising or it could cost.
The opinion is available here.
