Intuit wants suit over 'predatory' TurboTax fee tossed

An Arkansas couple is seeking class-action status for themselves and other taypayers

Intuit this week asked a court to throw out a class action lawsuit brought by two US taxpayers who claim their use of the TurboTax Online tax-preparation service resulted in a usurious and "predatory" fee.

Tasha and Fredierick Smith used TurboTax Online in February 2011 to file their 2010 tax return and Intuit charged them $86.90 for the tax-filing services, a fee the Smiths' opted to have taken out of their refunds, according to a complaint they filed in January in U.S. District Court for the Northern District of California.

Intuit also charged them a $29.95 "Refund Processing Fee" that set up a direct-deposit account, in which the U.S. Internal Revenue Service deposited their federal refund about two weeks later, according to the suit.

That fee amounted to a "refund anticipation loan," a "predatory" financial instrument from which companies like Intuit make ample profits, according to the suit.

"Thus plaintiffs paid $29.95 for an approximate 14-day loan of $86.90," it states. This resulted in an "exorbitant quadruple-digit interest rate" that was in violation of California's usury laws, according to the suit.

The Smiths also used TurboTax Online for tax years 2008 and 2009, and similarly deferred paying the preparation fees, resulting in the "exorbitant" $29.95 charge, it adds.

Their suit asks the court to recognize class-action status for themselves and other taxpayers who used the service. It seeks unspecified compensatory and statutory damages as well as an injunction against Intuit.

But in a motion to dismiss the suit filed on Monday, Intuit argued the Smiths' claims have no standing.

For one, "plaintiffs' Complaint alleges that the Refund Processing Service made available on Intuit's website is a 'refund anticipation loan' that violates various consumer credit statutes," Intuit said. "But merely calling something a refund anticipation loan does not make it so."

"In fact, the Refund Processing Service is nothing like a refund anticipation loan because it is neither a loan nor does it provide money to a taxpayer in anticipation of a tax refund," the filing adds. "It is merely a convenient bank service that allows taxpayers to deduct certain fees after their tax refunds are received from the IRS."

In addition, the Smiths had the option of paying for their tax-preparation fees with a credit or debit card but chose to have the cost deducted from their returns instead, the motion adds.

Intuit isn't directly responsible for the fee at issue in the case, the motion states.

"What Plaintiffs challenge--and all that they challenge--is a separate fee for the second option that was charged not by Intuit, but by a third-party bank that assisted them with the transaction," Intuit said. "To pay the TurboTax fees from their tax refunds, Plaintiffs entered into a separate contract with a bank to create a temporary bank account. The bank then received the refund from the IRS, deducted the TurboTax fees and the [$29.95] fee for electing this payment option, transferred the appropriate amount to Intuit, and paid the balance to Plaintiffs via direct deposit to their bank account."

Intuit's website describes the particulars of this fee "in plain language," the motion adds.

The Smiths in fact "got precisely the benefit of the bargain" and don't allege they misunderstood the Refund Processing Service, Intuit said. But now the couple wants the court to penalize Intuit on grounds the service "was mislabeled under technical consumer credit statutes," the motion adds.

"If Plaintiffs truly believed they had been wronged, one might expect them to have sued the banks that actually provided them the Refund Processing Service and charged them the fee," it states. "But the banks are heavily regulated under federal law, and they have arbitration provisions in their contracts. As a result, Plaintiffs have resorted to suing Intuit."

Intuit is asking the court to dismiss the Smiths' suit with prejudice, meaning it could not be brought again. A hearing on the motion is scheduled for June 1.

Chris Kanaracus covers enterprise software and general technology breaking news for The IDG News Service. Chris's e-mail address is

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Chris Kanaracus

IDG News Service
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