D.C. Sues InPhonic Over Rebate Restrictions

By Annys Shin
Washington Post Staff Writer
Friday, June 9, 2006

The D.C. attorney general is suing InPhonic Inc., accusing it of failing to deliver on rebates after the District-based retailer of wireless services and cellphones racked up more than 2,000 consumer complaints over the past three years.

In a suit filed yesterday in D.C. Superior Court, the attorney general's office alleges the company imposes "unusually restrictive conditions" on its rebates, making it "difficult or impossible" for consumers to obtain them.

For example, the suit alleges that for customers to qualify for some rebates, InPhonic in 2004 required them to submit a cellphone bill that was at least 120 days old -- to prove that they had stayed with their plan and made their payments. But the document had to be postmarked within 120 days of when the service was activated.

In addition, some consumers who contacted the company for assistance in obtaining rebates were routed to automated messages or to live representatives who were not helpful, the complaint said.

As a result of such policies, a majority of consumers who purchase wireless phones and plans through InPhonic either "never receive the advertised rebates" or are able to secure them only after following "onerous procedures," the complaint said.

According to the complaint, the company's ads from 2002 to 2005 did not display prominently enough details of discounts that required customers to maintain their wireless service for 181 days and pay their bills on time. If customers were late paying bills or switched wireless plans, their credit cards would be billed for the amount of the discount, as much as $250.

"We respectfully disagree with the Attorney General's assertion and believe we have provided clear and sufficient information, advice and direction to our customers," Greg S. Cole, senior vice president and corporate treasurer, said in a written statement. "Any time you're dealing with millions of customers, as we are, there are going to be occasional concerns."

Over the past three years, the company completed more than 2.5 million cellphone activations, Cole said. There were about 200 million cellphone subscribers in the country at the end of last year. Last year, InPhonic also "transitioned" to a new rebate redemption center and set up a Web site with tips for consumers on how to obtain rebates.

InPhonic sells cellphones made by Motorola Inc., Samsung and other major brands, along with wireless service plans from providers such as Verizon Wireless, Cingular Wireless and T-Mobile USA Inc. through several Web sites. Founded in 1999, it went public in November 2004 and raised $108.9 million, making it one of the first local companies to pull off a successful public stock offering after the dot-com bubble burst in 2000.

The company's losses widened in 2005 to $38.2 million from $10.2 million the year before. But last month, it signed a deal with Amazon.com Inc. to sell its products and services through the Seattle online retailer.

Like many retailers of cellphone and wireless calling plans, InPhonic relies heavily on rebates to lower advertised prices and entice customers. When combined with discounts for long-term service plans, such rebates can help bring down the cost of a new cellphone by a substantial amount.

For example, the InPhonic-operated Web site http://www.wirefly.com/ yesterday was offering a Motorola Q phone for $169, compared with the retail price of $449. The advertised price included a discount for opening a Verizon wireless account and two rebates, one for $50 and one for $30.

To secure rebates, consumers typically must fill out a form and submit documentation, such as a receipt and product serial number, by a certain date.

The D.C. attorney general's lawsuit was based on 2,210 complaints filed with the Washington area Better Business Bureau since 2003. Bureau president and chief executive Edward Johnson said the volume of complaints made InPhonic "one of the single most complained-about companies in the country."

Of the total number of complaints, about 1,400 had to do with selling practices, advertising issues, credit or billing disputes, and refund practices. The company resolved 1,618 complaints.

The attorney general's suit said InPhonic customers were also stymied by the company's enforcement of rebate policies. Some consumers who sent in their paperwork on time were denied rebates after the company sent them requests for more information after the rebate deadline had passed.

The D.C. attorney general's office wants InPhonic to compensate affected consumers and to pay civil fines to be determined by the court.

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