FTC Warns Tax Preparation Companies About Misuse of Consumer Data

The Federal Trade Commission is warning five tax preparation companies that they could face civil penalties if they use or disclose confidential data collected from consumers for the purpose of preparing their taxes for other unrelated purposes, such as advertising, without first obtaining consumers’ consent.

“Consumers trust tax preparers with sensitive information about their finances, marital status, children, and health,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection. “Companies that violate American’s privacy by seeking to monetize personal data without consent can face significant financial consequences.”

The FTC is using its penalty offense authority to remind tax preparation companies of the law and deter them from breaking it. By sending a Notice of Penalty Offenses, the agency is warning recipients they could incur civil penalties of up to $50,120 per violation if they misuse personal data in ways that run counter to the original purpose for which this information was collected. The penalty offense authority allows the agency to seek civil penalties against a company that engages in conduct that it knows is unlawful, and that has been found unlawful in a previous FTC administrative order, other than a consent order.

The notices sent to the tax preparation companies detail the acts and practices that were found to be a violation of the FTC Act in a previous administrative case against Beneficial Corp.  In that case, the FTC found that the company engaged in unfair and deceptive practices in violation of the FTC Act by using information collected for tax preparation services for unrelated loan solicitation purposes and ordered the company to halt such practices.

In the notices sent to the tax preparation companies, the FTC warned that the following practices may be deceptive or unfair under the FTC Act if companies fail to first obtain affirmative express consent from consumers:

• using information collected in a context where an individual reasonably expects that such information will remain confidential for purposes not explicitly requested by the individual;
• using such information to obtain a financial benefit that is separate from the benefit generated from providing the product or service requested by the individual; and
• using such information to advertise, sell, or promote products or services.

The notices further warn that it is unlawful to make false, misleading, or deceptive representations concerning the use or confidentiality of such information. The Commission specifically warned the companies that it considers it an unfair or deceptive practice to use tracking technologies such as pixels, cookies, APIs, or SDKs to amass, analyze, infer, or transfer personal information in the ways outlined above without first obtaining consumers’ express consent.

The Commission vote to authorize the notice and its distribution was 3-0.

The lead staffers on this matter are Michael Sherling and Manmeet Dhindsa from the FTC’s Bureau of Consumer Protection.