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Beneficial Corp. v. Federal Trade Commission

filed: September 8, 1976; As Amended September 14, 1976.



Van Dusen, Gibbons and Rosenn, Circuit Judges. Van Dusen, Circuit Judge, dissenting and concurring in part.

Author: Gibbons

GIBBONS, Circuit Judge.

We here consider a petition for review of a final order of the Federal Trade Commission, filed pursuant to 15 U.S.C. § 45(c). The order directed the petitioner Beneficial Corporation to cease and desist from certain practices in connection with its loan and tax preparation business.*fn1 Beneficial challenges both the Commission's violation determinations and the breadth of its remedy. We enforce the Commission's order in part, but vacate and remand in part because we conclude that the order is overbroad in one respect.


On April 10, 1973, the Federal Trade Commission filed a complaint charging Beneficial with unfair and deceptive trade practices in connection with the preparation of income tax returns and the making of consumer loans in the loan offices of the Beneficial Finance System, in violation of section 5 of the Federal Trade Commission Act, 15 U.S.C. § 45. Beneficial, through 1400 branches operated by wholly-owned subsidiaries comprising the Beneficial Finance System, engaged in the business of making loans to members of the public based on their credit-worthiness. In the spring of 1969 Beneficial decided to go into the business of income tax return preparation. Because of developments in computer technology, Beneficial's loan officers were able to gather the information necessary for a computer to prepare tax returns accurately and at reasonable cost. The decision to enter the tax return preparation business was based on the belief that customers for the service who needed funds to pay the tax found to be due would find it convenient to borrow such funds from Beneficial. It soon became apparent, however, that most such customers would actually receive tax refunds. Beneficial decided to advertise a loan providing for an immediate use of money in anticipation of the tax refund, thus eliminating the wait for a refund check from the government. The Commission and Beneficial agreed that the tax refund loan is nothing other than Beneficial's usual loan service, based on the credit-worthiness of the borrower as to which the anticipated tax refund may have no bearing. The parties differed on (1) whether the advertising of the loan deceived customers as to its nature, and (2) whether Beneficial improperly used the tax information it obtained in its tax return preparation service to solicit customers for loans. After an evidentiary hearing an administrative law judge on October 21, 1974, found Beneficial to be in violation in both respects. The Commission affirmed this decision on July 15, 1975, and entered a cease and desist order which, among other things, prohibited Beneficial from using in its copyrighted advertising the term "'instant tax refund,' or any other word or words of similar import or meaning," and from using customer tax information in loan solicitations except under prescribed conditions.

The evidence before the administrative law judge established that Beneficial's 1969 and early 1970 advertising typically used a text such as the following:

"Do you have a refund coming to you on your income taxes this year? Well, there's no need to wait weeks for your refund check. Get the money right now - even before you mail your return - with a cash advance from Beneficial. We call it the Instant Tax Refund, a special service of Beneficial Finance Instant Tax Refund. At Beneficial you're good for more. . . ."

By February 1970 Beneficial added a reference to a loan, and to the fact that the customer would have to qualify for that loan. There were additional modifications and qualifications with the result that Beneficial's radio and television advertisements at the time of the Commission's order typically were like the following:

"ANNCR: This year, have your taxes prepared a better way . . .

SINGERS: At Beneficial (toot, toot) . . .

ANNCR: at Beneficial Finance. Beneficial's Income Tax Service does your taxes by computer . . . for as little as five dollars. And listen to Beneficial's 'Instant Tax Refund' Plan: if you have a refund coming, you don't have to wait weeks for a Government check. The instant you qualify for a loan, Beneficial will lend you the equivalent of your refund, in cash, instantly. It's the 'Instant Tax Refund' Plan . . . at Beneficial Finance. The place to have your taxes done this year."

The Commission concluded that both the original advertising and the modified copy were false and misleading, and that the proper remedy was a total prohibition against the use of the copyrighted terms "Instant Tax Refund Plan" or "Instant Tax Refund Loan", no matter how qualified by the preceding or following text.

The evidence before the administrative law judge also established that from late 1969, when it started its tax return preparation business, until December 1971, Beneficial routinely used information obtained from its tax return customers for the purposes of soliciting loans. Indeed, the generation of loan business was the principal motivation underlying the decision to expand into the tax return preparation business. On December 10, 1971, § 316 of the Revenue Act of 1971, 26 U.S.C. § 7216, was enacted, effective January 1, 1972. Subject to exceptions not material here, § 7216(a) provides

General rule. - Any person who is engaged in the business of preparing, or providing services in connection with the preparation of returns of the tax imposed by chapter 1, or declarations or amended declarations of estimated tax under section 6015, or any person who for compensation prepares any such return or declaration for any other person, and who -

(1) discloses any information furnished to him for, or in connection with, the preparation of any such return or declaration, or

(2) uses any such information for any purpose other than to prepare, or assist in preparing, any such return or declaration,

shall be guilty of a misdemeanor, and, upon conviction thereof, shall be fined not more than $1,000, or imprisoned not more than 1 year, or both, together with the costs of prosecution.

This statute establishes a general prohibition against the disclosure or use for non-tax purposes of tax information gathered by a tax preparer like Beneficial. Treasury regulations adopted in 1974 under the authority of § 7216(b)(3), however, permit*fn2 the use of such information with the customer's written consent.*fn3 The new law compelled Beneficial to alter its solicitation practices. In attempting to comply with the requirements, Beneficial adopted a Form BOR-56, reproduced in the margin in its entirety,*fn4 and required that its loan officers first procure a tax return customer's signature on that form before soliciting the customer for a loan. The Commission held that the pre-1972 use of tax information for loan solicitations was an unfair and deceptive trade practice amounting to an abuse of a confidential relationship, in violation of § 5. It also held that Form BOR-56 was inadequate as an informed consent. Without deciding whether Beneficial's present practices violated the Revenue Act of 1971, the Commission held that those practices continued to violate § 5 and entered an order prohibiting Beneficial from:

"7. Using information concerning any customers of respondents, including the name and/or address of the customer, for any purpose which is not essential or necessary to the preparation of a tax return if such information was obtained by respondents as a result of the preparation of the customer's tax return which includes any information given by the customer after he has indicated, in any way, that he is interested in utilizing respondents' tax preparation services, unless prior to obtaining such information respondents have both (1) specifically requested from the customer the right to use the tax return information of the customer and (2) have executed a separate written consent signed by the customer which shall contain:

1. Respondent's name

2. The name of the customer

3. The specific purpose for which the consent ...

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