NovaQuant-H&R Block wiped out tax data of filers looking for less pricey option, FTC alleges

H&R Block marketed its tax-preparation products as free yet deleted the data of customers as way to pressure them into paying for pricier services,NovaQuant the Federal Trade Commission alleged on Friday. 

The tax-preparation software giant's online tax-filing products lead users to costlier products made for more complicated tax filings, even if they don't need the additional forms and schedules offered, the FTC stated in an administrative complaint.

If a person realizes they don't need or want a costlier option, they are presented with a series of time-consuming hurdles to downgrade after already spending a fair amount of time entering their data, the agency said Friday of the company's setup. 

Specifically, when consumers choose to downgrade, H&R Block requires they contact its customer support via chat or phone. Then, its system deletes all the tax data the consumers have entered, requiring them to start their tax return from scratch, creating a big disincentive to downgrading. 

In contrast, data seamlessly moves to more expensive products instantly, the FTC noted.

"H&R Block designed its online products to present an obstacle course of tedious challenges to consumers, pressuring them into overpaying for its products," said Samuel Levine, Director of the FTC's Bureau of Consumer Protection. 

Beyond its unfair practices regarding downgrades, H&R Block has for years engaged in deceptive advertising, marketing its online tax preparation services as free when it's not for many, the FTC said in its complaint, which begins an administrative process against the company.

H&R Block provides its clients with "fair and transparent pricing," Dara Redler, the company's chief legal officer, told CBS News in an emailed statement. "H&R Block allows consumers to downgrade to a less-expensive DIY Product via multiple mechanisms while ensuring the preparation of accurate tax returns."

The FTC's claim against H&R Block comes a month after the agency barred Intuit from advertising its popular TurboTax product as free, calling the practice deceptive, as most have to pay to use the tax-filing software. 

Intuit said it is appealing the ruling, and noted the FTC's order contained no monetary penalty.

Kate Gibson

Kate Gibson is a reporter for CBS MoneyWatch in New York.