Intuit Lawsuit Alleges TurboTax Refund Advance Disproportionally Harms U.S. Service Members

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A proposed class action lawsuit claims that Intuit effectively targets military service members with its payday loan-style TurboTax Refund Advance product, whose structure and required ancillary services allegedly cause the loans’ military annual percentage rate (MAPR) to exceed the limit allowed under federal law for service members and their dependents.

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The 25-page lawsuit contends that Intuit’s TurboTax Refund Advance violates the federal Military Lending Act (MLA) as the total cost of obtaining a tax refund advance loan ultimately exceeds the 36 percent interest rate cap in place to protect covered borrowers, e.g., active-duty service members and their dependents.

The lawsuit says that the tax refund advance product is similar to a payday loan in that it offers taxpayers who might lack immediate liquidity a short-term advance on their anticipated tax returns. The filing alleges that these types of loans can trap consumers into cycles of repeated borrowing, particularly for those who are financially vulnerable, including service members.

According to the complaint, service members are among the consumers most likely to rely on tax refund advance loans. Citing a U.S. Department of Defense report, the suit notes that service members are “three times more likely” to take out a payday loan, resulting in millions in allegedly abusive fees.

Related Reading: Class Action Lawsuit Claims H&R Block Offers Military Members ‘Payday-Style’ Loans with Illegal Interest Rates

The suit explains that the MLA was enacted to shield active-duty service members and their families from predatory lending practices by capping the MAPR at 36 percent and requiring clear disclosures of loan terms, including rates and payment obligations.

“Although the Refund Advance loan is marketed as having an Annual Percentage Rate of ‘0%’, this stated rate does not take into account added fees, which increase the Military Annual Percentage Rate (“MAPR”) of the loans,” the filing states.

In other words, the lawsuit claims, Intuit’s advertised zero percent APR is “legally irrelevant” and misleading because it excludes various fees—such as the $40 refund processing service fee, bank account fees and TurboTax fees—that effectively push the cost of the loan above the maximum rate under the MLA.

To receive a tax refund advance loan, consumers must file through TurboTax and open a Credit Karma Money Spend checking account with MVB Bank, the debit card issuer, before WebBank dispenses the funds, the complaint says. The suit alleges that these entities impose separate user agreements and fees, and that refund proceeds are irrevocably routed from the IRS into their accounts.

“These costs are not incidental; they are integral to the Refund Advance Loan program and disproportionately impact service members and/or their spouses or dependents living paycheck to paycheck, rendering the product far more expensive than Defendants’ marketing suggests,” the complaint asserts.

The lawsuit also takes issue with the arbitration agreements associated with the tax refund loans, alleging that Intuit requires borrowers to agree to arbitration clauses and class action lawsuit waivers that are prohibited under the MLA.

The TurboTax refund advance loan lawsuit looks to represent all covered members who entered into an agreement with Intuit to obtain a TurboTax Refund Advance loan, or similar product, for which the company charged a finance charge, including a Refund Processing Service fee or interest above the 36 percent MAPR cap.

The class action lawsuit also covers all covered members who entered into an agreement with Intuit, including an arbitration agreement, a class waiver agreement, a waiver of the right to a jury trial, or otherwise imposed “onerous” legal notice provisions in the case of a dispute.

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