U.S. Settles ‘Free PC’ Net Fraud Cases

The U.S. Federal Trade Commission (FTC) announced that settlements have been reached in deceptive advertising cases brought against Buy.com, Value America and brick-and-click retailer Office Depot.

According to the FTC, ads run by the three companies offering “free” and “low-cost” computers were misleading because the promotions required purchase of three-year Internet service contracts, and the companies failed to disclose the total cost of the offers.

Fine Print

The FTC said that the ads either did not fully disclose the terms, or the terms appeared in very small and inconspicuous disclaimers. In some cases, the disclaimers were as small as four-point type. As part of the settlements, the companies agreed to include additional information in future advertising so customers will be aware of their actual out-of-pocket costs.

The “free” or “low-cost” computers touted in the ads were in some cases far more expensive than advertised. For example, one advertisement featured a computer for $269 (US$). However, the purchaser’s actual cost, taking into account the cost of the Internet service contract, was over $1,000, nearly four times greater than the advertised price.

Jodie Bernstein, director of the FTC’s Bureau of Consumer Protection, said, “You shouldn’t need a Ph.D. to figure out the cost of a PC. These advertisers should have done a better job of disclosing the details so consumers could figure out the deal. The fact is that consumers and businesses all benefit when disclosures are prominently placed and in plain English.”

The FTC said that the companies also failed to inform customers that in order to receive the rebate on the price of the computer, they had to sign up for three years of Internet access with an Internet service provider, such as CompuServe, MSN, or Prodigy. In some instances, customers had to pay long-distance charges and expensive hourly surcharges because the chosen ISP did not have a local number. Consumers who chose to cancel their contracts before the term was up faced the loss of their rebates and, in many cases additional penalties.

The ads ran in newspapers, magazines, Web banners, and on the companies’ Web sites, as well as on TV and radio.

Free Monitors

The FTC said that both Office Depot and Value America falsely represented that the computer systems in question included a monitor at no additional cost. However, the monitor was not part of the offer and had to be purchased separately at a cost of $140 to $200.

Value America was also charged with violating the FTC’s “Mail or Telephone Order Merchandise Rule” by failing to ship products within the promised delivery time and failing to send late delivery notices to customers giving them the option of canceling their orders or getting a refund.

Consent Agreements

The consent agreements which ended the cases prohibit the companies from misrepresenting the price of any computer, computer-related products, or Internet access services. Office Depot and Value America are also prohibited from misrepresenting what is — and is not — included in the advertised price.

If a price or rebate is dependent upon the purchase of any other product or service, the companies must disclose that requirement and the price of the other product and service. The disclosures must be clear and conspicuous, and in close proximity to the price claim.

Buy.com and Value America are also required to provide clear and conspicuous disclosures whenever an after-rebate price is advertised, including disclosure of the before-rebate price and the rebate amount.

The companies are also required to provide full disclosure of all Internet service cancellation policies and information regarding possible long distance telephone charges. Value America is also required to offer customers the chance to cancel orders and request a refund if orders are not shipped on the promised date.

Value America President Glenda Dorchak said, “We are satisfied that our efforts with the FTC will ensure that our product descriptions, including information on rebates and shipping, are the most accurate and content-rich. Value America is pleased to assume a leadership role in developing best practices for the e-commerce industry.”