A New York judge concluded Tuesday that Dell Inc. engaged in repeated false and deceptive advertising of its promotional credit financing and warranties.
State Supreme Court Justice Joseph Teresi ordered the computer retailer 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.
New York Attorney General Andrew Cuomo sued Dell last year. Teresi gave him until Dec. 1 to identify all consumer claims for third-party repairs, new computers or higher interest payments than they would have paid otherwise.
"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. "This decision sends an important message that all corporations will be held accountable for the promises they make to consumers."
The attorney general's office had 700 complaints against Dell when the lawsuit was filed in May 2007 and has received more than 1,000 since, spokesman John Milgrim said.
Dell spokesman Jess Blackburn said the Round Rock, Texas-based company disagreed with the judge's decision and would be putting up a vigorous defense of its position, although it had not decided yet whether it would appeal.
"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," Blackburn said.
The company noted earlier 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.
According to the judge, Dell ads 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 percent 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.
Financing was done through Dell Financial Services, a joint venture of Dell and CIT Bank.
"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.'"
Many customers applied for credit thinking they would get the promotional rate, Teresi wrote. He enjoined Dell from advertising promotional rates without prominently disclosing how many applicants are likely to qualify, as well as the usual credit terms.
The judge 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.
The judge also faulted Dell for denying timely rebate requests that contained all required documentation and ordered Dell Financial Services to stop reporting payments were late from customers who offered documentation they had already returned equipment for full refunds.