Earlier this month, the Federal Trade Commission entered into a settlement with tax preparation company H&R Block, resolving allegations that the company misled consumers in connection with the marketing of its online tax filing service.  While there are lots of interesting things about this case, I'd like to focus on the FTC's concerns about how H&R Block advertised its “free” tax filing product.  

H&R Block promotes a variety of online tax filing products, including one where consumers can file certain tax returns for free.  For example, in one commercial, H&R Block advertised that consumers can “File for free” along with a disclaimer that says, “Simple returns only when filing with H&R Block Free Online.”  In another commercial, H&R advertised that “Simple Returns File Free,” along with the disclaimer “Not all taxpayers qualify.  See hrblock.com for details.”  

In the complaint, the FTC argued that these ads, and others like them, were misleading, because they promoted a “free” product that wasn't, in fact, free for many consumers.  Moreover, although the ads limited the offer to “simple returns,” the FTC didn't like that qualification, saying, “What constitutes a simple return, however, is not defined or explained in the advertisements and, in fact, changes from year to year as H&R Block alters which forms the Free Online Product covers.” 

It's worth paying close attention to these allegations, since there are some important take-ways about how the FTC thinks about advertising claims and disclaimers that are relevant for all advertisers. 

First, if you're advertising a product as “free,” but it's not always free, it's unlikely that any fine-print disclaimer is going to help.  In the first example, where H&R advertised that consumers can “File for free,” the FTC was not at all interested in a “small, inconspicuous” disclaimer located “toward the bottom of the screen” that explained that the “free” offer only applied to simple returns.  

Second, if you're thinking that the solution to the problem is to incorporate the disclaimer into the claim, the message of this case is that this may not help either.  In the second example, H&R Block seemed – at first glance – to solve the disclaimer problem by advertising that, “Simple Returns File Free.”  Instead of relying on the disclaimer to explain that limitation, the claim itself helpfully explains that not everyone will qualify and then the disclaimer directs consumers to a website for more details.  What didn't the FTC like here?  The FTC really just doesn't think that the phrase “simple returns” is an effective qualification (regardless of where it is located), since consumers won't be able to tell – from the ad itself – whether they will qualify for free filing.  

Third, the FTC was also troubled by the fact that if consumers then went to H&R Block's website to learn more, it wasn't easy to figure out which returns were covered by the “free” offer.  As the FTC explained, “only after wending through the above inconspicuous hyperlinks did H&R Block finally provide consumers with the full list of federal forms and schedules covered by the Free Online Product.”  

So, what's the solution here?  If you want to advertise a free product that is only available to a limited number of consumers, how do you advertise it without aggravating the FTC?  Let's look at the H&R Block settlement to see what the FTC says will solve the problem. 

In case there's any confusion about what the FTC thinks, not surprisingly, the settlement prohibits H&R Block from advertising the online filing product as “free” unless it's free for “all consumers.”  

If H&R promotes a “free” product that isn't free for all consumers, then here's what the settlement requires:

• The advertising must disclose, clearly and conspicuously, in close proximity to the “free” claim, the percentage of U.S. taxpayers that qualify (or if the product is not free for a majority of U.S. taxpayers, the advertising may instead disclose that a majority of U.S. taxpayers do not qualify); and 
• The advertising must also disclose, clearly and conspicuously, “all the terms, conditions, and obligations upon which receipt and retention of the “free” product are contingent, “so as to leave no reasonable probability that the terms of the offer might be misunderstood.” 

In other words, it's not enough to tell consumers that the “free” offer is only available to some consumers; you need to give consumers a clear warning that they may not qualify by explaining how many will actually qualify.  More than that, though, H&R Block is also required to disclose “all” the offer terms, which seems to be a pretty heavy lift (and a big departure from the usual advertising standard, which would just require disclosure of the “material” offer terms). 

Interestingly, the settlement includes separate requirements for space-constrained ads.  If H&R Block makes “free” offers in ads that don't have the space for the full disclosures required by the order, then here is what is required: 

• The advertising must still disclose the percentage of taxpayers that qualify for the offer;
• In addition, the advertising must clearly and conspicuously direct consumers to the eligibility requirements on a webpage that itself clearly and conspicuously includes the disclosures required above.  For space constrained ads that are online, the disclosures should be a click away. 

Given the FTC's recent focus on ensuring that online disclosures are unavoidable, it's pretty surprising to see the FTC approving disclosures that are a click-away.  The FTC could easily have said here that if you can't fit the disclaimers in a particular advertising format, then that format just isn't appropriate for this type of offer.  Does this suggest that the FTC may be having second thoughts about – or at least considering some reasonable exceptions to -- its “unavoidable” standard?  While only time will tell, this settlement certainly suggests that reports of the death of “one click away” may have been greatly (or at least somewhat) exaggerated.