FTC Smacks PeoplePC, Printer Cartridge Vendors

Computer maker PeoplePC Inc. Friday said it will pay a $100,000 civil penalty enforced by the U.S. Federal Trade Commission after it was accused of not notifying customers of shipping delays.

The San Francisco-based company, which was recently acquired by Internet service provider EarthLink, Inc. , sells four-year memberships for about $25 a month and in return, customers receive a name-brand computer with warranty, Internet access, and access to its member commerce program, which offers discounts for other businesses (such as E*TRADE and BUY.com. PeoplePC’s client list includes Ford Motor Co. and Delta Air Lines .

The FTC said it was concerned by the company’s failure to tell thousands of consumers in advance that their deliveries would be delayed, providing them with an opportunity to cancel or consent to the delay, or send them cancellation refunds within the time-frame required.

In addition to the violations of the Mail or Telephone Order Merchandise Rule (Mail Order Rule), the FTC’s complaint contended the company violated the Pre-Sale Availability of Written Warranty Terms Rule (Pre-Sale Availability Rule) by not “clearly and conspicuously” providing consumers with the warranties covering the products or services they purchased, or information on how the warranties could be obtained, before the purchases were made.

“Whether you’re selling merchandise through the mail, on the phone, or over the Internet, you’ve got to meet your shipment or delivery promises,” said J. Howard Beales III, Director of the FTC’s Bureau of Consumer Protection. “If you can’t, you’ve got to give consumers a chance to cancel their order or agree to the delay. Additionally, merchants offering a warranty must provide it in full text – or at least let your customers know where to get a copy for free.”

Beales said that warranty terms are particularly important to PC purchasers given the expense and complexity of the equipment, and the wide array of service and repair options offered. Fortunately, he noted, warranty information is also particularly easy and cheap to provide to consumers in the Internet environment.

Under FTC rules, for consumer products costing more than $15, either the full text of the written warranty must be provided pre-purchase, or it must be noted that the written warranty can be obtained free upon written request, and a contact address provided. That is something the FTC claims PeoplePC failed to do.

As part of the settlement, PeoplePC will be required to comply with both the Mail Order Rule and Pre-Sale Availability Rule in the future, and pay the civil penalty. The fine does permit the company to pay the penalty in two payments of $50,000 each, if necessary. In addition, the consent decree contains standard record-keeping and reporting provisions to make sure PeoplePC complies with its terms.

Printer Cartridge Vendors Charged

In a separate issue, the FTC said a handful of on-line sellers of generic and remanufactured inkjet printer cartridge refills have agreed to pay a $40,000 civil penalty after the Commission said that they engaged in deceptive practices.

The FTC said E-Babylon, Inc. and its two owners, Michael Zaya and Aidin Yousif, deceptively represented on their Web sites that their inkjet printer replacement cartridges were new, brand-name items, rather than remanufactured or generic items.

The Commission also alleges that the defendants violated the Mail or Telephone Order Merchandise Rule (Mail Order Rule) by failing to advise consumers of their right to cancel and receive a refund if the defendants were unable to ship the products on time.