The Federal Trade Commission yesterday reached a settlement with CompUSA Inc., requiring it to pay for rebates that a supplier failed to deliver to customers -- an action designed as a warning to retailers that they will be held accountable for rebates they advertise.
"The message to retailers should be clear," FTC Chairman Deborah Platt Majoras told a consumer assembly yesterday when she announced the agreement. "If you promise to provide a rebate of your own, you must honor that promise in a timely manner. Even if you are advertising someone else's rebate program, you may not turn a blind eye when that company fails to honor its rebates."
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CompUSA, one of the nation's largest computer retailers, declined to discuss the agreement, which settled allegations that the company engaged in unfair and deceptive practices.
According to the government's complaint, CompUSA in 2002 continued to advertise rebates for a small computer-accessory firm, QPS Inc., even though it knew that thousands of consumers had never received their promised money. QPS filed for Chapter 11 bankruptcy protection in August 2002. The FTC also said CompUSA failed to deliver rebates on its own branded products in a timely manner.
While declining to give specific numbers, FTC lawyer Kerry O'Brien said thousands of consumers will be eligible to receive rebates, ranging from $15 to $100. The amount of redress CompUSA will have to pay "should amount to hundreds of thousands of dollars," depending precisely on how many consumers CompUSA is able to contact, O'Brien said.
The FTC action is a "wake-up call for [retailers] to make sure they do business with manufacturers they trust," said Mike Gatti, executive vice president of the Retail Advertising and Marketing Association, a division of the National Retail Federation.
It could even lead to some changes in rebates, predicted Paula Rosenblum, retail research director for Aberdeen Group, a Boston technology research group. "If a retailer is all of a sudden responsible for rebates, I would expect rebates will start decreasing," both in frequency and dollar amount, especially large rebates, Rosenblum said. Otherwise, "the exposure will be too big."
Within the past decade, manufacturers and retailers have turned to rebates as a popular way to lure customers to buy their goods, particularly computer gear and electronics. For manufacturers, who usually paid the rebates to consumers, rebates helped push buyers to select one brand over another. At the same time, they allowed retailers to advertise a low price but still collect full price at the cash register, making their revenue look bigger.
Yet for consumers, rebates have become a major source of aggravation, with many complaining that the rules are so convoluted that it often proves difficult to get money back. Sometimes, the paperwork is too burdensome, or the deadline to file too tight, consumers have complained. Or the rebate coupons don't exactly match the product they bought, or they send in the wrong label. In the CompUSA case, however, the problem was that the manufacturer failed to pay consumers even after they had complied with the terms of the rebate.
A total of 1,710 complaints about rebates were filed with the Better Business Bureau in 2003, the latest year figures were available, compared with 964 complaints filed in 2001. At the FTC, complaints about rebates for computer equipment climbed from 1,004 in 2000 to 1,857 in 2004. Complaints about rebates made up about a quarter of all grievances about computers and accessories in both years.
In too many cases, said Gail Hillebrand, senior attorney for Consumers Union, rebates are "bait-and-switch pricing" as promised rebates don't materialize.
C. Britt Beemer, chairman of the consumer behavior marketing firm America's Research Group, estimates that about 30 percent of consumers actually redeem rebates. The lower the dollar value of the rebate, the lower the redemption rate, with rebates above $50 sometimes garnering a 66 percent redemption rate, he said.
Beemer said the FTC action "should definitely have an impact and clean up" some of the consumer complaints as retailers will be forced to be "a little more careful about which companies they accept rebates for."
Staff researcher Richard Drezen contributed to this story.