BlueHippo Faces FTC Probe, Suits

BlueHippo Funding, a Baltimore company that sells computers and plasma TVs nationwide to people with poor credit, is under investigation by the Federal Trade Commission after being hit with hundreds of customer complaints in its three years in business.

Along with the federal probe, the Illinois attorney general’s office sued the company late last year, Florida has launched an investigation and, last week, two Californians sued BlueHippo and are seeking class-action status to represent thousands of customers.

Launched in April 2003, BlueHippo grew quickly through radio and cable television ads that pitched computers to those without access to traditional credit.

Customers pay through electronic debits to their bank accounts over one year. The company promises to send the merchandise once customers make three months of payments worth hundreds of dollars.

Early on, customers began to complain that they didn’t get their computers and weren’t able to get refunds, and complaints have persisted. The Better Business Bureau of Greater Maryland says it has logged 799 complaints in three years, making BlueHippo their most complained-about company.

“We get calls every day,” said Kerri Kelly, public relations manager with the Better Business Bureau in Baltimore.

In August, the FTC subpoenaed Wachovia Bank for records relating to BlueHippo, according to a letter from FTC Secretary Donald S. Clark posted on the agency’s website. The FTC was still collecting evidence from customers this month.

FTC officials said they didn’t comment on whether an investigation was taking place. Nor would BlueHippo spokesman Michael Waldron.

But “if an appropriate regulatory agency has a question with regard to the company’s practices, BlueHippo fully cooperates with them in the interest of clearing up any concerns they may have,” he said.

BlueHippo said it catered to customers who have credit problems and earn an average of $40,000. The typical customer’s credit score is 455, a level considered extremely risky, the company said. It said staffers explain the sales terms including its no-refund policy. The number of complaints is small compared with the 160,000 customers the company has served in the last three years, Waldron said.

“The company offers consumers with credit challenges the opportunity to purchase very expensive electronics when no other retailer or lender will,” Waldron said.

Critics say BlueHippo prices its computers at three to five times the retail cost; by the time customers get their computer, they’ve already paid more than it’s worth.

The higher prices reflect the higher cost of doing business with poor credit risks, the company said. More than 40% of its customers don’t complete the payment plan once they receive the computer, it said. About one-third give false bank account information, or the first payment is returned for insufficient funds, the company said.

One dissatisfied customer is Stacey Simms, who responded last year to BlueHippo’s pitch.

“I said, ‘It must be legitimate.’ They have a TV commercial and are on the radio all the time,” said Simms, a clerk with the vital records office in Prince George’s County, Maryland.

She said she paid about $125 initially, and $84 was debited from her bank account every two weeks. Simms said she was first told she would get a computer after her first payment. But the delivery dates kept changing, extending to three or four months, she said.

She filed a complaint with the Better Business Bureau. She also stopped payments despite BlueHippo’s no-refund policy.

“It was a hard decision. They had $500 of mine that I would never see again,” she said.

Simms told the company she was reporting it to the business bureau. The next day, BlueHippo told her the computer had been shipped. She has the computer, but the experience has left her angry.

“I was noticing they still have their commercials. How are they surviving?” she asked.

BlueHippo’s practices violate state consumer laws across the country, said David Marshall, a Washington consumer attorney representing the Californians suing BlueHippo.

“State-level regulators should have taken action against this company long ago and prevented them from cheating so many people as they have out of their money,” he said. “That’s the reason we are doing this lawsuit.”

BlueHippo’s Waldron said the company would not comment on specifics of the suit. But the company “vigorously [disagrees] with the premise and assertions in the complaint,” he said.

The lawsuit Marshall filed in federal court seeks class-action status to represent thousands of California customers who never received their computers and potentially lost millions of dollars.

BlueHippo claims to sell top-of-the-line computers when in reality they are basic or outdated models, the lawsuit says. Customers can end up paying nearly $2,000 for a computer that sells for $400 or less in the stores, the suit says.

Customers aren’t told crucial sales terms, such as the price of the computer, according to the suit. Those who back out of the deal never get a computer or a refund, the lawsuit says.

“I can’t think of another situation where people make weekly payments for a number of months then, if they default, they don’t get their money back,” Marshall said.

Customers would be better off buying a computer on a retail layaway plan, he said.

Kelly Cannon, a medical assistant for the Sacramento County Sheriff’s Department, said she saw BlueHippo’s TV ad last year and liked the offer of low payments and delivery in weeks. BlueHippo debited $99 from her checking account upfront, and arranged to withdraw $100 every two weeks.

Despite many promises, however, the company never delivered the computer, even after she had paid $600, Cannon said. That’s when she wrote to complain to Maryland state officials.

“I was so upset. If [BlueHippo] can do this to me, how many other people are they doing this to?” she asked. “They need to be stopped.”