Computer Retailers Settle With FTC over Advertising

Advertising for so-called “free” and “low-cost” computer systems was
declared deceptive and misleading this week, as the Federal Trade Commission this week settled
deceptive trade practices charges with online retailers and Value America and the Office Depot retail chain.

The hubbub centered around advertisements and promotions that included
rebates conditioned on the purchase of three years of Internet service. The
FTC said the conditions weren’t displayed prominently enough, and it was too
difficult for the average consumer to figure out the true costs of such a
“free” or “low-cost” computer.

“You shouldn’t need a Ph.D. to figure out the cost of a PC,” said Jodie
Bernstein, director of the Federal Trade Commission’s Bureau of Consumer

“These advertisers should have done a better job of disclosing the details
so that consumers could figure out the deal. The fact is that consumers and
businesses all benefit when disclosures are prominently placed and in plain

The settlement is an important one in an age in which Internet service is
increasingly bundled with a computer purchase, and when a continued
subscription to an ISP is a condition of getting a low priced or free

The FTC gave an example of one ad that featured a computer for $269. But the
purchaser’s actual expenses would exceed $1,000, after paying for the
Internet service for the length of the required contract.

In addition, consumers who cancelled their contracts before the term was up
would be charged the “full price” of the computer, and, in some cases, face
additional penalties. Computer buyers in some parts of the country also
would face long distance charges, if they lived in a place where the ISP was
a long-distance call. All of this information, according to the FTC,
appeared in very small or inconspicuous disclaimers.

Both Office Depot and Value America were also charged with falsely
representing that their “free” computer system offers included a monitor.
The Value America complaint also alleged that the company violated
regulations on “Mail or Telephone Order Merchandise” by failing to deliver
within the promised delivery times.

As part of the settlements, the three companies agreed to disclose the true
costs of the computer systems more prominently.

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