Cuomo Kicks Dell When It's Down

New York's Attorney General charges Dell with fraudulent financing offers. Complaints may mount if other states take up the case

by Arik Hesseldahl

In 2002, Rye (N.Y.) resident Paul Reisner wanted a Dell (DELL) computer for a son going away to college. He was told he qualified for a "Dell Preferred Account" that he understood would let him purchase the machine with 0% financing provided that he paid for the machine within 90 days—which he says he did.

So Reisner was taken aback when he started receiving monthly bills for $29 late charges. He complained to Dell and was told the matter was being looked into. But the fees piled up, and the account was eventually referred to a collection agency. Ultimately Reisner was forced to pay about $125 to settle the matter. "Then I tried to call [Dell Chairman] Michael Dell," he says. "When they didn't put the call through, I decided to write the Attorney General's office."

Deceptive Financing Terms

A lot of other consumers have filed complaints against Dell in recent years, many of them frustrated by what they consider deceptive practices by the computer maker. In many cases, customers were lured by ads promoting the preferred account, which they believed carried 0% financing, only to learn later that they were subject to much higher interest rates and other fees. Enough lodged complaints to prompt New York Attorney General Andrew Cuomo to take action.

Cuomo's office on May 14 sued Dell, alleging that "consumers who purchase Dell's products often find that many of the benefits and inducements featured in Dell's advertisements are illusory." The complaint says that of more than a million New York residents who applied for Dell credit from Jan. 1, 2003, to March, 2005, 48% were approved for "preferred" accounts. But of those, fewer than 17% were approved for the promotional financing offers. Most were offered the "regular" financing plan that carried higher interest rates and financing charges. Dell carried out a large-scale bait-and-switch scheme, offering low- or zero-interest deals that were difficult to qualify for and then steering customers into financing with less favorable terms without telling them, according to the lawsuit.

Getting approved for the "preferred" account was a challenge even for those with good credit histories. Cuomo's complaint says that from May, 2002, to June, 2005, 65,000 New York residents, all with FICO credit scores of 700 or higher, were turned down for "preferred" accounts and instead given "regular" credit accounts with interest rates of 16.99% to 27.99%.

Dell Denies Wrongdoing

For Dell, long the world's largest maker of personal computers, the lawsuit adds to a growing list of woes that includes management upheaval and a loss of market share—and its No. 1 share ranking—to rival Hewlett-Packard (HPQ). Chairman Michael Dell has recently retaken the CEO's chair from former CEO Kevin Rollins, promising among many things, to take aggressive steps to fix Dell's customer service problems (see BusinessWeek.com, 2/12/07, "Is Dell Too Big for Michael Dell?").

Dell says it's making progress on that front. It responded to the complaint from Cuomo's office by saying that complaints filed by New York consumers with the Better Business Bureau were down by 28% in 2006 from 2005, and that nationally, those complaints were down by 12% over the same period. It also promised to defend itself vigorously in court. "Our customers are our top priority at Dell," the company said in a statement. "We are confident that our practices will be found to be fair and appropriate.