H&R Block Won’t Be Tricking Anyone With ‘Free’ DIY Tax Prep This Tax Season

The Federal Trade Commission (FTC) has finalized an order that forces H&R Block to make some changes for the upcoming tax season and the next, namely not dangling their “free” online service in everyone’s face as if the majority qualify and not deleting customer information if someone decides not to proceed with a paid upgrade. In addition to the required changes we’ll outline below, H&R Block will be paying the FTC $7 million.

The FTC’s beef with the Block — first announced in February of last year — was that they were advertising “free” prep that often didn’t end up being free and did not explain to customers which of its products cover what forms or situations. So if customers went through the process with tax situations more complicated than a simple 1040, they later would discover the product was more expensive than they needed. THEN when the customers downgraded to a cheaper product, H&R Block “presented them with a series of time-consuming obstacles.”

Specifically:

First, consumers had to contact customer service by phone or chat to request to downgrade, which was time-consuming. Then, when consumers did downgrade, H&R Block deleted the data they had previously entered, costing consumers additional time to re-enter their tax information in the downgraded product. Consumers who sought to upgrade encountered no such obstacles.

Don’t you just HATE that?

Here’s an old ad from a few years ago:

As discussed briefly above, the FTC order requires H&R Block to stop completely deleting consumers’ previously entered information.

Specifically, when a consumer downgrades back to the product they upgraded from, H&R Block must ensure that the consumer returns to the same point in filing where they were when they upgraded, which will save consumers significant time and effort. H&R Block must also provide an easily noticeable and always available way for consumers to downgrade without having to call customer service or chat with a live customer service agent.

They can no longer advertise the free DIY option without advertising the percentage of taxpayers who are eligible to use these free products (note here the FTC was generous with the finger quotes around the word “free” throughout the press release and order) or they can outright say that the majority of taxpayers do not qualify. OR they can choose to offer completely free DIY online prep to everyone but we all know that wouldn’t happen, so much so that the FTC didn’t even mention it in their press release.

Here’s what H&R Block CEO Jeffrey J. Jones III had to say about their DIY products in the company’s 2024 annual report:

In DIY, our business continued its momentum with market share gains for the second consecutive year. We delivered revenue growth of 11% in this channel year over year, and our customer satisfaction scores remained strong. Performance was driven by paid client and net average charge (NAC) growth. I was also pleased with how fast we were able to launch our genAI powered AI Tax Assist, which resulted in higher new client conversion, as well as the ongoing strength in our Tax Pro Review product.

For fiscal year 2024, H&R Block prepared 11.4 million US assisted tax returns and their clients filed 3.8 million DIY online paid tax returns. Total consolidated revenue was $3.6 billion with net income of $598 million. That means the $7 million FTC fine is about 1.2% of net income.

If they get caught violating this order each violation could result in a civil penalty of up to $51,744.

The FTC voted 5-0 to approve the final order. While they obviously voted to approve, Commissioner Andrew N. Ferguson joined by Commissioner Melissa Holyoak issued this statement [PDF]:

Today, the Commission votes to approve the issuance of the final Decision and Order in In re H&R Block Inc., HRB Digital LLC, and HRB Tax Group, Inc (collectively, “H&R Block”). The Commission alleges that H&R Block, a tax preparation and filing service, engaged in unfair and deceptive business practices. Counts I and II relate to its customer-service-contact requirements and data-wiping practices. The complaint also alleges that H&R Block misleadingly marketed a free version of its online tax preparation product while knowing that very few consumers were eligible to use the free version.

I continue to have serious reservations about the merits of Count III—the deceptive marketing of H&R Block’s free version of its online tax preparation products. I previously voted to submit this Decision and Order for public comment with the hope that the public would weigh in on the merits of Count III or the U.S. Court of Appeals for the Fifth Circuit would provide guidance in a different case involving a very similar claim.

Unfortunately, none of the three comments submitted during the public comment period addressed the issue [Ed. note: those comments here] and the U.S. Court of Appeals for the Fifth Circuit has yet to issue its decision. I concur in today’s final Decision and Order notwithstanding my doubts about the merits of Count III because the law and evidence support the remaining counts in the complaint. The Order will impose important protections for consumers relating to Counts I and II in the upcoming tax season, and my reservations about Count III are insufficient to merit voting against those important protections If, however, the Fifth Circuit confirms my suspicion that the allegations of the complaint do not support the claim set forth in Count III, the Commission should modify the final Order’s requirements relating to Count III.

Count III in the order is “Prohibition Against Misrepresentations”:

IT IS FURTHER ORDERED that Respondents, Respondents’ officers, agents, employees, and attorneys, and all other persons in active concert or participation with any of them, who receive actual notice of this Order by personal service or otherwise, whether acting directly or indirectly, in connection with the advertising, marketing, promoting, or offering for sale any DIY Online Products, are permanently restrained and enjoined from misrepresenting, expressly or by implication, any material fact concerning any DIY Online Product, including: the price; cost, including total cost; any refund policy; any material restrictions, limitations, or
conditions; or any material aspect of its performance, efficacy, nature, or central characteristics.

We can’t imagine why the public didn’t have lots to say about this.