The Power of “Free”
by: Mindy Abern & John Allaire
On January 22, 2024 the Federal Trade Commission (“FTC”) issued an Opinion and Final Order that Intuit Inc., the maker of “TurboTax” tax filing software (“Intuit”), engaged in deceptive advertising in violation of Section 5 of the FTC Act. Affirming the Administrative Law Judge’s Initial Decision, the FTC (in a unanimous 3-0 vote) ruled that Intuit deceived consumers by running ads for “free” tax products and services when many consumers were not eligible for the free product version.
Intuit advertised (through Internet ads, paid search ads, email, the TurboTax website, TV, and radio) that consumers could file their taxes for free using TurboTax. The advertisements conveyed that TurboTax was “free” using language such as “Free Guaranteed”, “at least your taxes are free”, and simply “free”. The advertisements did include disclosures indicating that the offer was limited to consumers with “simple tax returns” and used language such as “see details” as well as “see if you qualify.” In reality, two-thirds of taxpayers (approximately 100 million taxpayers) were not eligible to file with the free TurboTax product, and the cost for a customer to use a paid DIY version of the software ranges from $34.99 to $99.00.
The FTC found that the disclosures were not clear and conspicuous and did not change the strong and powerful net impression of the ‘free’ ads for two reasons.
1. Wording of Disclosures: The disclosures did not clearly or sufficiently alter Intuit’s claim that a user of Turbotax could file their taxes for free. Pro forma statements like “see if you qualify” and “see details” provide almost no information. And “simple” has a common meaning that differed from Intuit’s definition. Reasonable consumers would not understand the word “simple” to correspond to a particular tax form or depend on the existence of attached schedules. Consumers may believe their returns are “simple” because they do not have a complicated investment portfolio or a large income and may not realize that merely having a mortgage or giving charitable contributions would make their taxes outside the scope of what Intuit considers “simple.”
2. Conspicuousness of Disclosures: The disclosures in the advertisements were too inconspicuous to have disclosed anything at all. The small print was often faint and virtually lost against the other larger, bolder, printed messages and the disclosures typically appeared for only a few seconds against a backdrop of other sounds or moving images.
The FTC made clear that disclaimers or qualifications are not adequate to avoid liability “unless they are sufficiently prominent and unambiguous to change the apparent meaning of the claims and to leave an accurate impression”, stating, “anything less is only likely to cause confusion by creating contradictory double meanings.”
The FTC held that Intuit’s conduct was serious and deliberate. As a result, the FTC ordered Intuit to cease making the deceptive claims and prohibited Intuit from advertising or marketing that any good or service is free unless, (i) it is free for all consumers, or (ii) it discloses clearly and conspicuously and in close proximity to the “free” claim the percentage of taxpayers or consumers that qualify for the free product or service. Alternatively, if the good or service is not free for a majority of consumers, it could disclose that a majority of consumers do not qualify. The order specifically requires that Intuit disclose clearly and conspicuously all the terms, conditions, and obligations that are required in order to obtain the “free” good or service. The order also prohibits Intuit from misrepresenting any material facts about its products or services such as the price, refund policies, or consumers’ ability to claim a tax credit or deduction or to file their taxes online accurately without using TurboTax’s paid service.
FTC Bureau Director Samuel Levine reiterated the importance of caution around making “free” claims: “As the Commission has long understood, “free” is a powerful lure, one that Intuit deployed in scores of ads. Its attempts to qualify its “free” claim were ineffective and often inconspicuous. The FTC found that Intuit’s “‘simple returns only’ disclosure is anything but clear and unambiguous,” and “does not change the strong and powerful net impression of the ‘free’ ads.”
Previously, the FTC published some key takeaways from the Initial Decision. Here are our favorites:
1. Exercise caution when using the word “free.” Given the power of ‘free’ messaging, the need to provide clear and conspicuous disclosures of any limitations or conditions is particularly strong.
2. Don’t rely on a purported “disclosure” to correct a deceptive claim. The FTC examines disclosures’ wording, font size, font color, juxtaposition with other statements, location and length of time on the screen, placement, and other relevant factors.
3. Consider consumer perception before making unqualified claims. Qualifications must be unambiguous to change the apparent meaning of a claim and leave an accurate impression.
4. Don’t rely on pro forma statements like “see details” to change the message consumers take from an ad. This type of statement is unlikely to alter the overall net impression of an ad.
5. The potential complexity of a transaction doesn’t relieve companies from meeting truth-in-advertising standards. If an advertiser induces the first contact with a consumer through deception – the advertiser has violated the FTC Act “even if the buyer later becomes fully informed before entering the contract.”
6. Don’t assume that sending people to a website for more information will cure deception. The public is not under a duty to make reasonable inquiry into the truth of advertising and information available on a website cannot be used to counter or cure a false claim contained in advertising.
7. If a truthful explanation of material terms of an offer would subject consumers to “information overload,” rethink your claim. If it is difficult to effectively communicate all material eligibility requirements for an offer, avoid the claim.
Originally published by InfoLawGroup LLP. If you would like to receive regular emails from us, in which we share updates and our take on current legal news, please subscribe to InfoLawGroup’s Insights HERE.