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TurboTax Maker Settles Usury Claims for $6.55M

SAN JOSE, Calif. (CN) - A federal judge approved a $6.55 million settlement of two class actions that claim Intuit's free edition of TurboTax included usurious "quadruple-digit interest rates."

Lead plaintiffs Tasha and Fredierick Smith, of Arkansas, filed their complaint against Intuit last year claiming that the software maker 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."

The couple argued that Intuit's fee should be considered a refund anticipation loan and therefore subject to interest rate and finance charge disclosure rules. But U.S. District Judge Edward Davila disagreed and dismissed the action, writing that the RPO did not qualify as a loan because customers never received any money from Intuit. After allowing the Smiths to amend their complaint twice, Davila ordered the parties into mediation.

Earlier this year, both sides announced they had reached a preliminary $6.55 million agreement.

Davila signed off on the settlement Tuesday, which covers all users of TurboTax's refund processing service between 2008 and May 28, 2013. The agreement incorporates a second class action against Intuit that is currently pending in state court.Additionally, the judge awarded a total of $1,686,301 in attorney fees and costs to the firms Carney Bates & Pulliam, Golomb & Honik, Ku & Mussman, and Milstein Adelman, who represented the classes in the action.

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