BlueHippo Defendants Will Pay up to $5 Million to Settle FTC Charges
February 25, 2008
Two companies that offer to finance the sale of personal computers to consumers with poor credit ratings have agreed to pay up to $5 million for consumer redress to settle Federal Trade Commission charges that they violated federal laws.
According to the FTC’s complaint, BlueHippo Funding, LLC and BlueHippo Capital, LLC offered to extend credit to consumers to finance purchases of personal computers and other consumer electronics with down payments of $99 to $124 and a year of weekly or bi-weekly payments ranging from $36 to $88. In nationwide television and radio commercials, and on their Web site, the defendants touted the ability of consumers with “less than perfect credit, bad credit, no credit” to finance the purchase of a computer. Many consumers who ordered products paid hundreds of dollars and received nothing in return, the complaint alleges.
According to the complaint, the defendants required consumers to agree to a series of automatic, periodic debits from their bank accounts to purchase their products, promising that they would deliver the product once the consumer made 13 weekly, or seven bi-weekly, payments. In many instances, the defendants debited consumers’ accounts without first disclosing that consumers could not get a refund even if they cancelled before delivery of the product, and regardless of the reason for cancellation.
Consumers who ordered products by calling a toll-free number were told that they would receive a “shipping verification form” with sale terms and shipping information, and that they had to sign and return the form to ensure product delivery, the complaint alleges. The form contained terms that were not disclosed previously, including disclosures regarding finance terms. The defendants often failed to provide the forms and revolving account agreements before they debited accounts, so the finance terms and refund policy were not disclosed before consumers started making non-refundable payments.
According to the complaint, many consumers did not receive the merchandise they ordered or refunds. The FTC alleges that the defendants failed to clearly and conspicuously disclose their policy of not providing refunds before debiting accounts, in violation of the FTC Act, and consumers had no opportunity to make a timely and informed decision about whether or not to risk the potential loss of advance payments. The defendants also allegedly failed to deliver the products after consumers made 13 weeks of payments, as promised during the sales call, also in violation of the FTC Act.
The defendants also are charged with violating the FTC’s Mail Order Rule by failing to ship merchandise in a timely manner or give consumers the right to cancel and receive a refund. They allegedly violated the Truth in Lending Act (TILA) and Regulation Z by failing to make certain written disclosures before a transaction is made under an open-end consumer credit plan, and they allegedly violated the Electronic Fund Transfer Act (EFTA) and Regulation E by conditioning the extension of credit to consumers on repayment by preauthorized electronic debits.
Under the proposed stipulated final order, the defendants are barred from misrepresentations in the marketing of consumer electronics or any product requiring four or more periodic payments before shipment. They also are barred from misrepresenting refunds, cancellations, exchanges, or repurchases of products without disclosing clearly and conspicuously, before receiving payment, the terms and conditions, and any policy of not refunding all payments when a consumer cancels the contract before product delivery. In addition, they are permanently prohibited from violating the Mail Order Rule, the TILA and Regulation Z, and from conditioning the extension of credit on mandatory preauthorized transfers in violation of the EFTA and Regulation E.
The settlement includes a monetary judgment of at least $3.5 million and up to $5 million. This money will be used to provide redress to consumers who entered into contracts with the defendants before March 2006, made payments, and did not receive the ordered products, refunds, or other restitution. If valid consumer claims exceed $3.5 million, the defendants will be required to pay up to an additional $1.5 million to pay those claims. The settlement also requires the defendants to stop collecting money from purchasers who are entitled to redress, to stop furnishing derogatory information about such purchasers to credit reporting agencies, and to notify any agency to which they have provided such information that the person’s account is in good standing. The settlement contains monitoring and record keeping provisions to ensure their compliance.
FTC Lodges Contempt Charge Against BlueHippo
November 12, 2009
Company Pocketed More Than $15 Million From Consumers Last Year, But Almost None Received a Computer
The Federal Trade Commission has asked a federal court to issue a contempt order against BlueHippo, a company that collected more than $15 million from consumers based on claims that it would finance their purchases of new computers, but delivered neither the financing nor the financed computers, in violation of a 2008 court order. The FTC alleged that less than one percent of consumers who signed up with BlueHippo received the financed computers they applied for, and undisclosed conditions to redeem “store credits” were rigged to discourage consumers from using them.
In a contempt motion lodged with the court today, the FTC charged that BlueHippo has flouted a settlement reached with the agency last year, continuing to deceive thousands of financially strapped consumers with phony promises that it would help them purchase a computer even if they have credit problems. The FTC also is asking the court to order BlueHippo to compensate injured consumers and bar BlueHippo from similar conduct in the future.
“Years of broken promises by BlueHippo have left consumers seeing red,” said FTC Chairman Jon Leibowitz. “We’re putting companies like this on notice: If you mistreat consumers and thumb your nose at the courts, we will hold you accountable.”
The FTC reached a settlement with Baltimore-based BlueHippo in April 2008 that required the company to pay $3.5 million for consumer redress and barred the defendants from further deceiving customers. According to the FTC’s 2008 complaint, BlueHippo Funding, LLC and affiliate BlueHippo Capital, LLC offered to extend credit to consumers to finance purchases of personal computers and other consumer electronics with down payments of $99 to $124, and a year of weekly or bi-weekly payments ranging from $36 to $88. BlueHippo promised to deliver the product once the consumer made 13 weekly payments. But most consumers did not receive the computers they ordered in the time promised, even after they had made 13 weeks of payments, the Commission alleged. The Commission charged that BlueHippo’s marketing tactics were deceptive, and violated the FTC Act and other federal credit statutes.
Even after this settlement order was entered by the court, BlueHippo continued to deceive consumers, according to the FTC. The company aggressively marketed itself as a computer finance company and spent the rest of 2008 signing up customers and taking their money, but failing to provide them with financed computers. The FTC’s contempt motion alleges that between April and December of 2008, more than 35,000 customers contracted for BlueHippo’s computer financing deal. But the company provided, at most, a single financed computer, failing to provide financed computers even for 2,477 customers who managed to meet the companies’ conditions. Complaints about the company poured into the Better Business Bureau. On top of all that, BlueHippo failed to submit a report to the FTC showing how it was complying with the settlement, as required by the order.
Finally, in April, 2009, after the FTC notified the court that BlueHippo was violating the settlement, the company began ordering thousands of computers. Even so, the FTC alleges that BlueHippo failed to order computers for 1,015 of the 2,477 consumers who had qualified for financing by making 13 consecutive payments and completing the required paperwork. For the 1,462 consumers who finally received a computer, BlueHippo did not even order – let alone ship – the computers within the three- to four-week time frame the company had advertised. On average, it took about six months between the time these consumers qualified for their computers and the time BlueHippo ordered the machines, according to the FTC’s contempt motion.
The FTC’s contempt motion also charged that BlueHippo failed to disclose key aspects of its refund policy. In particular, the company promised that while consumers who canceled their order after seven days could not obtain cash refunds, they could get “store credit,” which could be used to buy desktop computers, laptops, monitors, software, and televisions. But it failed to tell consumers that they would have to send a money order to cover undisclosed shipping and handling fees, as well as taxes, even if they had more than enough store credit to cover these costs – and that they could only order one item at a time.
The contempt motion against defendants BlueHippo Funding, LLC; BlueHippo Capital, LLC; and Joseph Rensin was filed in the U.S. District Court for the Southern District of New York.