The Washington, DC attorney general filed a consumer protection lawsuit against Liberty Tax accusing the tax-prep chain of misleading consumers with misleading ads and promotions and predatory pricing.

DC Attorney General Karl Racine’s office filed a lawsuit Wednesday against Liberty, which is the nation’s third-largest tax-prep chain. The lawsuit alleged that Liberty aggressively marketed its services to low-income DC residents by offering them $50 cash “just for the deposit,” but then increased tax preparation fees for customers who accepted the cash payments. He accused the tax preparation channel of violating DC’s consumer protection laws and is seeking a court order requiring Liberty to provide accurate and truthful information and provide financial relief to thousands of consumers, as well than civil penalties.

“We filed this lawsuit to stop Liberty Tax from unlawfully preying on DC’s most vulnerable low-income residents,” Racine said in a statement. “Now is the time for Liberty Tax to be held accountable for persistently and fraudulently inducing DC residents to overpay for tax preparation. Misleading consumers is illegal, and we will not allow businesses to profit by deceiving the residents of the district.” (Full disclosure: Racine was a classmate of this writer.)

Liberty has had a checkered history in recent years. Its founder, John Hewitt, who previously co-founded the tax-prep chain Jackson Hewitt after working as an executive at H&R Block, was ousted from the company in 2019 after a sex scandal involving company employees, which had to solve a sexual problem. lawsuit for harassment (see the story). The company’s then-parent company, Franchise Group Inc., also settled a lawsuit with the IRS and the Department of Justice alleging that Liberty failed to maintain adequate controls over returns prepared by franchisees and failed to prevent the filing of potentially false or fraudulent statements by franchisees (see the story). Last year, Liberty Tax was acquired by NextPoint, a special purpose acquisition company, for $182 million in cash and $67 million in stock (see the story). A spokesperson for NextPoint Financial did not immediately respond to a request for comment on the DC attorney general’s lawsuit.

To entice consumers, according to the lawsuit, Liberty Tax aggressively promoted immediate distributions of $50 “just for filing with Liberty Tax” at the start of tax season before the end of February. Liberty Tax called it “cash in a flash” and described it as a “benefit” with no downside. The company has widely featured “fast cash” on its own website, in online videos, and by placing signs with signs such as “GET $50 NOW” outside of its stores, which are mostly located in low-income neighborhoods. However, the company did not disclose that consumers who accepted cash would be charged more than those who did not. On average (depending on the forms they filed), consumers who accepted the $50 offered by Liberty were then charged between $67 and $200 more for tax preparation services than consumers who did not. not participated in the promotion.

Liberty operates four locations in DC where it provided more than 12,000 cash payments to consumers as part of its “cash in a flash” promotion from 2015 to 2021, according to the AG’s office, raising prices than thousands many DC consumers have paid for tax preparation without their knowledge, especially low-income taxpayers. On average, according to the AG office, Liberty charged people who file simple returns with just a 1040 and a W-2 an average of $75 more if they accepted the $50 in cash. However, it charged people who received the earned income tax credit an average of $93 to more than $200 more than EITC recipients who did not take up the 50 cash promotion. $.