With Anticompetitive Concerns Addressed, Intuit / Credit Karma Deal Moves Forward

Intuit Inc., owner of the popular TurboTax DIY tax preparation service, has moved forward with its $8.1 billion acquisition of Credit Karma, Inc., after satisfying the government’s requirement that Credit Karma divest its tax preparation business. Square, Inc., agreed to buy Credit Karma Tax for $50 million in cash on behalf of Cash App, Square’s financial services mobile app that allows individuals to spend, send, store, and invest money.

The Antitrust Division of the U.S. Department of Justice began looking into the acquisition after concerns were raised about Intuit’s growing dominance of the DIY tax prep market and the removal of an innovative disruptor.

MoginRubin’s Timothy Z. LaComb had commented in August 2020 that the DOJ would likely find the deal violated the Clayton Act and sue to block it.

Intuit had long dominated digital tax preparation, now controlling more than 70% of the market. Credit Karma introduced its tax prep software in 2016 and reached 3% of the market share, a 50% increase from the prior year. H&R Block is the only other significant competitor, holding onto roughly 14% of the market. The transaction, as originally proposed, would have created a virtual duopoly in the digital tax preparation market, LaComb said.

Press, including ProPublica, and legislators questioned Intuit’s aggressive and anticompetitive tactics. Senate Finance Committee Ranking Member Ron Wyden (D-OR) sent a letter to the DOJ that stated: “Intuit’s highly-profitable tax preparation business depends both on duping low-income tax-filers and in eliminating the threat posed by universal free-filing options from competitors like Credit Karma. Without Credit Karma’s free tax filing product, consumers will have far fewer choices and many of them will have to pay $60 and up for a product that is available for free today.” Wyden also raised concerns about the massive volume of at-risk sensitive consumer information Credit Karma gathers.

House Antitrust Subcommittee Chairman David N. Cicilline (RI-01) argued the deal bore “all the traditional signs of a dominant incumbent seeking to tame a maverick competitor,” and that antitrust law required Intuit/TurboTax to “compete on the merits rather than be permitted to purchase its way out of competing.”

According to MoginRubin’s LaComb, the DOJ had reasons to be concerned with the merger, which he said was a “presumptively anticompetitive consolidation” as described by the DOJ’s Horizontal Merger Guidelines. The creation of a virtual duopoly would have increased the risk of coordination between rivals, he said.

“Credit Karma is the prototypical maverick, i.e., a firm that plays a disruptive role in the market to the benefit of customers,” LaComb wrote. “Acquisitions of mavericks by entrenched market dominators are viewed with enhanced skepticism.” He noted the DOJ’s successful challenge of a similar merger in 2011 between H&R Block and TaxAct.

Calling it a situation in which “an entrenched dominant firm is trying to protect its position by acquiring a fast-growing, pro-consumer market disruptor,” LaComb said the DOJ should examine the deal and “implement conditions that address these competition issues,” which the government has now done.

On Dec. 23, 2020, the DOJ filed an unopposed motion to appoint Wan J. Kim as monitoring trustee. Kim is a former Assistant Attorney General with the DOJ’s Civil Rights Division. He has experience as an Assistant U.S. Attorney, as in-house counsel at a technology company, and as a litigator.

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