DC Attorney General sues Liberty Tax over ‘misleading’ cash advance promotion

The attorney general for Washington, DC, has filed a consumer protection lawsuit against Liberty Tax accusing the tax prep chain of deceiving consumers with misleading ads and promotions and predatory pricing.

DC Attorney General Karl Racine’s office filed the suit Wednesday against Liberty, which is the third biggest tax prep chain in the country. The lawsuit alleged that Liberty aggressively marketed its services to low-income residents in DC by offering them $50 in cash “just for filing,” but then actually increased the tax prep fee for clients who accepted the cash payments. He accused the tax prep chain of violating DC’s consumer protection laws and is asking for a court order requiring Liberty to provide accurate and truthful information, and pay monetary relief to thousands of consumers, along with civil penalties.

“We filed this lawsuit to stop Liberty Tax from illegally preying on DC’s most vulnerable low-income residents,” Racine said in a statement. “Now is the time for Liberty Tax to be held accountable for persistently and fraudulently tricking DC residents into overpaying for tax preparation. Misleading consumers is illegal, and we won’t allow businesses to profit by cheating District residents.” (Full disclosure: Racine was a college classmate of this writer.)

A Liberty Tax location in Louisville, Kentucky

Luke Sharrett/Bloomberg

Liberty has had a checked history in recent years. Its founder, John Hewitt, who had formerly co-founded the Jackson Hewitt tax prep chain after working as an executive at H&R Block, was ousted from the company in 2019 after a sex scandal involving employees at the company, which had to settle a sexual harassment lawsuit (see story). The company’s parent company at the time, Franchise Group Inc., also settled a lawsuit with the IRS and the Justice Department alleging that Liberty failed to maintain adequate controls over returns prepared by franchisees and failed to prevent the filing of potentially false or fraudulent returns by franchised (see story). Last year, Liberty Tax was acquired by NextPoint, a special purpose acquisition company, for $182 million in cash and $67 million in shares (see story). A NextPoint Financial spokesperson did not immediately respond to a request for comment on the DC attorney general’s lawsuit.

To lure consumers, according to the attorney general, Liberty Tax aggressively promoted immediate handouts of $50 “just for filing with Liberty Tax” early in tax season before the end of February. Liberty Tax referred to it as “cash in a flash” and depicted it as a “perk” with no downside. The company heavily featured “cash in a flash” on its own website, in online videos, and by stationing sign-wavers with signs such as “GET $50 NOW” outside of its stores—which are primarily located in lower-income neighborhoods. However, the company did not disclose that consumers who accepted the cash would be charged more than those who did not. On average (depending on which forms they filed), consumers who accepted the $50 offered by Liberty were then charged anywhere from $67 to $200 more for tax prep services than consumers who didn’t participate in the promotion.

Liberty operates four locations in DC where it provided over 12,000 cash payments to consumers as part of its “cash in a flash” promotion from 2015 to 2021, according to the AG’s office, increasing the prices thousands of DC consumers paid for tax prep without their knowledge, especially low-income taxpayers. On average, according to the AG’s office, Liberty charged individuals who file simple returns with only a 1040 and a W-2 an average of $75 more if they accepted the upfront $50 in cash. However, it charged individuals who received the Earned Income Tax Credit an average of $93 to over $200 more than EITC recipients who didn’t accept the $50 cash promotion.

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