TurboTax Maker Dodges Couple’s Usury Claims

SAN FRANCISCO (CN) - A federal judge dismissed claims that the so-called free edition of TurboTax includes usurious, "quadruple-digit interest rates."

Lead plaintiffs Tasha and Fredierick Smith, of Arkansas, filed their complaint against Intuit in January claiming that the softwaremaker violates the Truth in Lending Act (TILA) and California business and usury laws. The couple said they used TurboTax in 2009, 2010 and 2011, and deferred paying the $86.90 fee to use the software each time, choosing instead to have the amount deducted from their tax refund.

But Intuit charged them another $29.95 for this, a "refund processing option" (RPO) more than 34 percent of the original fee, the Smiths claimed. The couple said they received their federal refund in two weeks.

"Plaintiffs paid $29.95 for an approximate 14-day loan of $86.90," their complaint stated. "The APR, properly calculated in accordance with TILA, was an exorbitant quadruple-digit interest rate. Such interest rates also violated California's usury laws."

But while the Smiths claimed that Intuit's fee should be considered a refund anticipation loan and subject to interest rate and finance charge disclosure rules, U.S. District Judge Edward Davila disagreed.

"Here, the RPO as described in the complaint is missing the first step of the definition of a loan: Intuit did not give plaintiffs money, or satisfy an obligation on behalf of plaintiffs," Davila wrote. "Instead, the RPO allowed plaintiffs to delay payment for use of the TurboTax software until after plaintiffs receive their refund from the IRS. Intuit did not provide any amount of money to plaintiffs; the only money plaintiffs received was from the IRS in the form of their refund. Thus, the RPO is not a loan because the nature of the transaction does not deliver a sum of money to another or require that money be returned at a future time. The fact that Intuit allows for a delay in receiving payment for use of its tax preparation software is not sufficient to demonstrate that Intuit plausibly made a loan to its customer in the amount of the payment owed."

Because the RPO is not actually a loan, the Smiths' usury claims similarly fall flat, Davila found. The Smiths also failed to show that Intuit's refund option deceived them.

"Plaintiffs have failed to plead economic injury that was the result of the unfair business practice or false advertising that is the gravamen of their claims," Davila wrote.

The judge dismissed the Smiths' case with leave to amend in 30 days.

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