The Rebate Debate: Why Were They Late? FTC Settles Charges Against CompUSA

Under the terms of two separate consent agreements announced today, the Federal Trade Commission has settled charges against nationwide computer superstore CompUSA Inc. and the officers of computer peripherals manufacturer Q.P.S. Inc., whose products were marketed and sold by CompUSA, for allegedly failing to pay, in a timely manner, thousands of rebates for products sold under the CompUSA and QPS brands. Under the terms of the settlement with the superstore, CompUSA will pay consumers who purchased QPS products at CompUSA their due or past-due rebates, which ranged from $15 to $100 each.

Today’s case represents the first time the FTC has charged a nationwide retailer over its rebate advertising practices, including its advertising of manufacturer mail-in rebates. The administrative consent agreements announced today settle all charges against CompUSA and QPS’s principals Priti Sharma and Rajeev Sharma.

“When it comes to rebates, retailers must deliver on their promises,” said Lydia Parnes, Acting Director of the FTC’s Bureau of Consumer Protection. “The message to retailers is clear – the FTC is on the beat and will take action if you advertise manufacturers’ rebates when you know they aren’t honoring their promises.”

The Commission’s Complaints

In its complaint against the superstore, the FTC alleges that CompUSA engaged in deceptive and unfair practices relating to rebate offers made for both its own branded products, as well as QPS products that it marketed and sold. Specifically, according to the FTC, CompUSA was involved with the creation of the rebate program for QPS-funded mail-in rebates for products sold at CompUSA. The complaint also alleges that in marketing QPS’s rebates, it falsely represented that QPS-funded rebate checks would be mailed to buyers of QPS products within six to eight weeks, or within a reasonable period of time. Between September and December 2001, however, many consumers experienced delays of between one and six months before receiving their rebates, and some never received the promised rebates at all. Similarly, between January and July 2002, many consumers experienced delays and thousands never received their rebates from QPS. Despite knowing about these problems, the FTC contends, CompUSA continually advertised QPS’s rebates until shortly before the company filed for bankruptcy in August 2002.

With regard to marketing CompUSA’s own branded products, the FTC’s complaint alleges that CompUSA promised that it would deliver its rebates, ranging from $3 to $100 in value, within six to eight weeks, or within a reasonable period of time. Between September 2001 and June 2002, however, many consumers experienced delays ranging from a week to more than three months before getting their money. Finally, the complaint against CompUSA alleges that in many cases, after receiving valid rebate requests for CompUSA-branded products, the company unfairly unilaterally extended the time period in which it would deliver the rebates, without consumers agreeing to the time extension.

The complaint against QPS principals Priti and Rajeev Sharma also challenges their rebate-related conduct as deceptive and unfair. The company is now in bankruptcy and is not currently operating.

Terms of the Consent Orders

The Commission has approved two separate consent orders, one addressing the alleged conduct of CompUSA, and the second with QPS’s principals.

CompUSA. The consent order with CompUSA prohibits it from, among other things, representing the time in which it will mail any cash rebate that it will fund, unless it has substantiation for that claim. It also prohibits CompUSA from failing to provide any such rebate within the time specified to consumers, or, if no time is specified, within 30 days. The company also is prohibited from misrepresenting any material terms of any CompUSA rebate program.

Further, the order addresses CompUSA’s role as a retailer in advertising manufacturers’ rebates – that is, those to be funded by the manufacturers. Under the terms of the order, CompUSA is prohibited from advertising the availability of a manufacturer’s rebate unless: 1) it has an established record with the manufacturer demonstrating that the manufacturer has consistently paid rebates in a timely manner; or 2) if it does not have such an established record with the manufacturer, CompUSA has conducted a reasonable financial analysis of the manufacturer that demonstrates the manufacturer’s ability to pay the offered.

Finally, the order requires CompUSA to pay all valid QPS rebate requests that were received from consumers who bought QPS products at CompUSA, and which are due or past due. CompUSA also is required to send a rebate to any eligible consumer who contacts them within 75 days after the final order is served on the company. Customers wishing to contact Comp USA regarding QPS rebate issues can reach the company by calling 1-800-CompUSA and selecting Option 3.

The order also contains standard reporting and record-keeping requirements to ensure CompUSA complies with its terms. In addition, the order requires CompUSA to provide a copy of the order to manufacturers currently offering rebates exclusively at the computer superstore and to those that do so in the future.

QPS Principals. The order with QPS’s principals prohibits them from engaging in practices similar to those alleged in the Commission's complaint, specifically those related to any rebate program involving any product or service.

The Commission vote to accept the consent agreements was 5-0. The FTC will publish an announcement regarding the agreements in the Federal Register shortly. The agreements will be subject to public comment for 30 days, until April 11, 2005, after which the Commission will decide whether to make it final. Comments should be addressed to the FTC, Office of the Secretary, Room H-159, 600 Pennsylvania Avenue, N.W., Washington, DC 20580. The FTC requests that any comment filed in paper form near the end of the public comment period be sent by courier or overnight service, if possible, because U.S. postal mail in the Washington area and at the Commission is subject to delay due to heightened security precautions.

NOTE: These consent agreements are for settlement purposes only and do not constitute an admission by the defendants of a law violation.

Copies of the documents mentioned in this release are available from the FTC’s Web site at http://www.ftc.gov and also from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, DC 20580. The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint, or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1-877-382-4357), or use the complaint form at http://www.ftc.gov.

The FTC enters Internet, telemarketing, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies worldwide.

(FTC File No. 0223278)