In 2022, the Office of the Attorney General (OAG) filed a lawsuit against Liberty Tax, accusing the company of unlawfully overcharging numerous DC residents and deceiving consumers through false advertising regarding their cash incentives.
Attorney General Brian L. Schwalb made an announcement regarding the settlement reached with Liberty Tax, the nation's third largest tax preparation company. In order to compensate over 7,300 DC residents who were deceived and overcharged for tax preparation services, Liberty Tax will pay a sum of $550,000. Additionally, as part of the settlement, Liberty Tax is obligated to pay $200,000 to the District and cease its deceptive marketing and pricing strategies nationwide.
“Liberty Tax deceived thousands of taxpayers in DC with its bogus ‘cash in a flash’ promotion,” said Attorney General Schwalb. “This settlement not only forces Liberty Tax to compensate every Washingtonian it unlawfully took advantage of, but also creates strong, nationwide legal guardrails that will protect taxpayers across the country. Our office will continue to use the law to hold accountable any business that seeks to unfairly profit by deceiving DC residents.”
“Annual tax refunds are an incredibly important source of income for thousands of families in the District and millions across the country,” said John Breyault, National Consumer League Vice President of Public Policy, Telecommunications, and Fraud. “Deceptive tax preparation offers rob those families of money they need to pay rent, put food on the table, and pay childcare expenses. The National Consumers League applauds General Schwalb for holding Liberty Tax accountable. This settlement should serve as a warning to any tax preparation company that seeks profits by deceiving consumers in the District of Columbia and beyond.”
“We applaud the Office of the Attorney General for its work protecting District residents from these deceptive practices and returning money to the taxpayers who need it the most,” said Jennifer Joseph, Supervising Attorney in Legal Aid DC's Consumer Law Unit.
“Tax credits are an important part of our safety net, with refunds providing a critical influx of cash for low-income taxpayers who rely on them to catch up on bills and other expenses after struggling to make ends meet throughout the year. The settlement also underscores the ongoing need to simplify tax filing processes at the federal and District level and the importance of free tax preparation services offered at VITA sites throughout the District, which can save consumers hundreds of dollars each year.”
“We are proud to partner with and refer clients to the Office of Attorney General because they protect all DC residents from dubious consumer practices,” said Jorge Tormes, senior staff attorney at Tzedek DC, a legal services nonprofit focused on consumer issues. “The investigation and legal action by Attorney General Schwalb’s office against Liberty Tax is vitally important work and protects DC residents, especially working class residents of color, from deceitful practices designed to extract wealth from the Ward 7 community.”
Liberty Tax, the third largest tax preparation company in the United States, currently operates two physical locations in Ward 7 of the District and serves a significant number of DC taxpayers annually. In order to attract customers, Liberty Tax aggressively promoted an enticing offer of immediate $50 handouts for simply filing with their services. This offer, known as "cash in a flash," was presented as a perk without any drawbacks.
However, in 2022, the Office of the Attorney General (OAG) filed a lawsuit against Liberty Tax, accusing the company of unlawfully overcharging numerous DC residents and deceiving consumers through false advertising regarding their cash incentives. The lawsuit provided detailed evidence of how Liberty Tax explicitly claimed that the $50 cash payments had "no catch."
In reality, though, Liberty Tax raised its prices for customers who accepted the cash. Depending on the forms filed, customers who opted for the upfront $50 were subsequently charged up to $200 more for tax preparation compared to those who did not accept the cash offer.
In order to resolve the lawsuit filed by the OAG, Liberty Tax is required to take the following actions:
1. Compensation for overcharged DC residents: Liberty Tax must pay a total of $550,000 to more than 7,300 DC residents who were affected by the "cash in a flash" promotion and were unknowingly overcharged for tax preparation services between 2014 and 2021. The amount of compensation will vary based on the number of times the individuals participated in the promotion. Eligible consumers will be notified about the compensation process through both email and US mail in the upcoming months.
2. Permanent cessation of deceptive cash incentives: Liberty Tax is obligated to permanently discontinue the deceptive "cash in a flash" program throughout the United States. Additionally, the company is prohibited from introducing any new incentive programs that may impact the prices charged for tax preparation services for consumers who receive such incentives.
3. Compliance monitoring for five years: Liberty Tax must regularly report to the OAG regarding any incentive programs implemented to attract consumers. This includes submitting all marketing and training materials related to these programs. Furthermore, the company is required to provide extensive data to the OAG, enabling them to assess whether any incentive programs are influencing the prices charged for consumers who receive the incentives.
4. Payment to the District: Liberty Tax must pay $200,000 to the District as part of the settlement agreement.
The resolution of this matter was overseen by Wendy Weinberg, Senior Assistant Attorney General, Nicole Hill, Assistant Attorney General, and Adam Teitelbaum, Director of the Office of Consumer Protection.
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