N.Y. Judge Rules Dell Engaged In Fraud, Deceptive Business Practices

Judge Joseph Teresi said Dell lured consumers to purchase its products with advertisements that offered attractive "no interest" and/or "no payment" financing promotions. However, many consumers were denied those deals. The judge called it a "bait-and-switch" scheme in which consumers instead often received interest rates that exceeded 20 percent.

In his decision, the judge wrote, "Dell has engaged in repeated misleading, deceptive and unlawful business conduct, including false and deceptive advertising of financing promotions and the terms of warranties, fraudulent, misleading and deceptive practices in credit financing, and failure to provide warranty service and rebates."

Teresi also found that Dell deprived consumers of technical support to which they were entitled under their warranty or service contract by:

- Repeatedly failing to provide timely on-site repair to consumers who purchased service contracts that promised on-site and expedited service.

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- Pressuring consumers, including those who purchased service contracts that promised "on-site" repair, to remove the external cover of their computer and remove, reinstall and manipulate hardware components.

- Discouraging consumers from seeking technical support. The judge found customers who called Dell's toll-free number were subjected to long wait times, repeated transfers and frequent disconnections.

- Failing to provide rebates that were promised to consumers.

New York Attorney General Andrew Cuomo's office filed a lawsuit against Dell in May 2007.

Dell issued the following statement regarding the judge's findings:

"We don't agree with the decision and will be defending our position vigorously. Our goal has been, and continues to be, to provide the best customer experience possible. We're confident that when the proceedings are completed, the court will determine that only a relatively small number of customers have been affected."

The Attorney General's office said consumers were often misled by Dell's practices. "Dell and [Dell Financial Services] 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 Attorney General's office said in a statement.

"For too long at Dell the promise of customer service was a bait-and-switch that left thousands of people paying for essentially no service at all," Cuomo said in the statement. "We have won an important victory that will force Dell to live up to its responsibilities and pay back its customers for profits that were pocketed but not deserved. This decision sends an important message that all corporations will be held accountable for the promises they make to consumers."

In addition, Dell Financial Services (DFS), a joint venture between Dell and CIT Bank, incorrectly billed consumers on canceled orders, returned merchandise, or accounts it did not authorize Dell to open, according to Cuomo's office.

Dell also "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," according to the statement.

The ruling by the court prohibits Dell and its DFS arm from engaging in the practices cited in the suit. Teresi also ruled the court will hold future hearings to determine restitution Dell would have to pay customers for profits "unlawfully earned," according to a release from the state Attorney General's office.