Dell found guilty of fraud and customer harassment

A New York judge ruled against Dell Inc yesterday, saying the computer maker engaged in fraud, false advertising, deceptive business and abusive debt collection practices. However, the quantum of punishment has yet been determined.

New York State Supreme Court Judge Joseph Teresi said Dell lured customers with advertisements offering "no interest" or "no payment" financing options, but its financing arm Dell Financial Services LP, a joint venture of Dell and CIT Bank, would charge higher rates.

The decision stems from a lawsuit filed in May 2007 by New York Attorney General Andrew Cuomo. The ruling prohibits Dell and Dell Financial Services LP from engaging in the practices cited in the suit.

The court plans to hold further hearings to determine how much restitution Dell should pay to customers and the amount of profits Dell "unlawfully earned" that must be forfeited to the state of New York, according to a release from the attorney general's office.

"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. "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 his ruling, Teresi says Dell "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."

He ordered Dell to more clearly disclose that most customers don't qualify for free financing or get "next day" repair service. "It appears likely that there are many more New York consumers who are entitled to restitution who are not included in the complaints," Teresi wrote.

According to the judge, Dell advertisements offered promotions like free flat-panel monitors, additional memory, rebates, instant discounts and financing with no interest or no payments for a period to "well qualified" or "best qualified" customers. However, Cuomo's submissions indicated as few as 7 per cent of New York applicants qualified for some promotions.

"Most applicants, if approved for credit, were offered very high interest rate revolving credit accounts ranging from approximately 16 percent up to almost 30 percent interest without the prominently advertised promotional interest deferral," Teresi wrote.

"Dell certainly has knowledge of the relative numbers of customers who qualify for various promotions," Teresi wrote. "It is therefore determined that Dell has engaged in prominently advertising the financing promotions in order to attract prospective customers with no intention of actually providing the advertised financing to the great majority of such customers. Such conduct is deceptive and constitutes improper 'bait advertising.'"

He also noted many affidavits alleging long telephone waits on hold for technical support, numerous phone transfers among departments, the need for repeated customer calls to get through and "numerous instances" when Dell refused to provide on-site service before it had determined what parts needed to be replaced. Some customers said they waited weeks, months and even years.

Dell also often failed to provide onsite repairs for customers who bought contracts for such support and often blamed software when hardware was actually the problem, the court found. The company also sometimes refused to offer support when a support contract ended, even though the user had first complained about a problem before the end of the contract. Subscribers to a "next-day" repair service sometimes waited as long as a year for support, the court found.

The company often incorrectly billed people for cancelled orders and for accounts they didn't authorize. The companies then harassed the people for payment, using illegal billing and collection practices, the court said.

Dell defended itself by stating that it had 6 million transactions in New York between 2003 and 2006, with alleged complaints representing only a tiny fraction. Dell also told the court that it has started selective recording and auditing of sales representatives to avoid misrepresentations and has invested millions of dollars in customer service and technical support, significantly reducing customer-waiting times on the phone.

Dell said it disagreed with the ruling, but has not decided whether to appeal.

"We don't agree with this decision and will be defending our position vigorously. Our goal has been, and continues to be, to provide the best customer experience possible," the company said in a statement.

"We are confident that when the proceedings are finally completed the court will determine that only a relatively small number of customers have been affected," it said.

Dell Inc. is a multinational company based in Round Rock, Texas which develops, manufactures, sells, and supports personal computers, servers, data storage devices, network switches, software, televisions, computer peripherals, and other technology-related products.

As of 2008, Dell employed more than 95,000 people worldwide and held the second spot in computer-sales within the industry behind the Hewlett-Packard Company. It reported annual revenues of $57 billion last year.