Advertising Law Blog

The New York Attorney General and Dell and its subsidiary, Dell Financial Services (DFS), have reached a settlement whereby Dell agreed to by the AG's Office $4 million in restitution, penalties and costs to resolve charges of fraudulent and deceptive business practices across New York State.

The settlement follows a decision of the New York Supreme Court, Albany County, which sustained Attorney General Cuomo's claims that Dell had engaged in fraud, false advertising, deceptive business practices, and abusive debt collection practices. The court's decision came as a result of the original lawsuit filed by the NY AG, which charged that Dell engaged in bait and switch advertising with respect to its "no interest" financing promotions, misled consumers to believe they had qualified for promotional financing, failed to adequately disclose the terms of its "next day" service contracts and failed to provide consumers with warranty service and promised rebates.

Along with the $4 million in restitution, penalties and fees, the settlement also requires Dell to make sweeping changes to its advertising, sales and financing practices. Among other things, Dell will be required to advise consumers before they purchase an "at home" or "on site" service contract that they may be required to engage in diagnostic activity over the telephone that includes consumers themselves opening their computers to access internal components. The settlement also requires Dell to disclose in its advertisements for promotional financing the estimated percentage of consumers who will actually qualify for the promotion.

According to the Court's decision upholding the Attorney General's lawsuit, Dell deprived consumers of the technical support to which they were entitled under their warranty or service contract by: 1) Repeatedly failing to provide timely on site repair to consumers who purchased service contracts promising "on site" and expedited service; 2) Pressuring consumers, including those who purchased service contracts promising "on site" repair, to remove the external cover of their computer and remove, reinstall, and manipulate hardware components; and 3) Discouraging consumers from seeking technical support; those who called Dell's toll free number were subjected to long wait times, repeated transfers, and frequent disconnections.

The court concluded that Dell lured consumers to purchase its products with advertisements that offered attractive "no interest" and/or "no payment" financing promotions. In practice, however, the vast majority of consumers, even those with very good credit scores, were denied these deals. In a classic "bait and switch" scheme, DFS instead offered consumers financing at high interest rates, which often exceeded 20 percent. Dell and DFS frequently failed to clearly inform these consumers that they had not qualified for the promotional terms, leaving many to unwittingly finance their purchase at high interest rates.

The decision also held that DFS incorrectly billed consumers on cancelled orders, returned merchandise, or accounts they did not authorize Dell to open, and then continually harassed these consumers with illegal billing and collection activity. Although many consumers repeatedly contacted Dell and/or DFS to advise them of the errors, DFS did not suspend its collection activity and Dell failed to expeditiously credit consumers' accounts, even after assuring consumers it would do so. As a result, many consumers have been subjected to harassing collection calls for months on end and have had their credit ratings harmed.

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