Stores Settle Allegations on Zero-Interest Advertisements
Four retail chains Monday settled allegations that they used deceptive advertising for no-interest loans, a gimmick that has become more widespread in the increasingly cutthroat consumer electronics business.
Best Buy, CompUSA, Montgomery Ward and Radio Shack agreed to pay a total of $925,000 to the 23 states involved in the probe, including California. Authorities said an investigation into the practices of other electronics retailers is continuing.
As part of the settlement, the four retailers agreed to clearly disclose in future ads the terms and conditions of zero-interest payment plans.
The sweeping crackdown marks the second time in recent months that states have banded together to attack widespread consumer problems. In June, Levitz Furniture Inc. settled charges by seven states that it misled consumers with phony discounts.
By working together, the states can avoid duplication of effort and set what amounts to nationwide guidelines for certain ads.
“This is a growing pattern of multi-state activity,” said Herschel Elkins, California senior assistant attorney general. “In many of these cases, we are looking at the same type of ad from the same retailer.”
Zero-interest plans are common gimmicks among retailers of big ticket items, such as electronic equipment and furniture. The plans waive interest charges for a specified period of time, usually six to 12 months.
The catch in some cases is that interest may accumulate and become due at the end of that time period. In other cases, interest is waived only if monthly payments are made.
Authorities said that the payment plans involved in the investigation varied. They said that in all cases, retailers either failed to disclose the terms of payment plans in the ads, or did so in hard-to-read type.
“The ads were not clear,” said Elkins. “And we thought deceptive. When you put down zero, it means something to consumers.”
Elkins said authorities in California opened the investigation into zero-interest ads about 10 months ago, in response to consumer complaints.
Elkins said that California will receive about $100,000 of the settlement funds, which will be used to police ads about zero-interest loans. He said California and other states are continuing to negotiate with retailers over their zero-interest ads.
The companies involved in Monday’s settlement did not admit wrongdoing. The companies agreed to state clearly the terms and conditions of their financing offers, close to the banner proclaiming zero-interest payment. Best Buy said that it has been complying with the terms of the settlement for about a year. Other retailers couldn’t be reached.
Best Buy and CompUSA will each pay $175,000; Montgomery Ward will pay $275,000, and Tandy, also parent of Computer City, McDuff and the Incredible Universe, will pay $300,000 to the states.
California will receive about $25,000 from each.
Twelve states, including California, are receiving payments from each retailer. In addition, 11 states are receiving a payment from at least one retailer.
