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Class Action Accuses Dell of Defrauding Customers

February 22, 2005
A San Francisco law firm has filed a class action suit against Dell Inc., the world's largest purveyor of personal computers, and financial partner CIT Bank, claiming that they are systematically deceiving customers who buy Dell products.

Dell uses multi-media advertising, bait-and-switch marketing tactics and false promises of low-cost financing to lure and defraud purchasers with installment payment schemes offered by Dell Financial Services (DFS), a joint venture between Dell and CIT Bank, the suit alleges.

Lerach Coughlin Stoia Geller Rudman & Robbins LLP filed a class action suit in Superior Court for San Francisco County against Dell, DFS and CIT on behalf of Dell customers who are victims of the giant global company and its lending service.

"We received too many complaints to ignore," said Reed R. Kathrein, a Lerach partner who filed the suit Feb. 14, before President Bush signed legislation restricting class actions.

"Dell offers one low-priced product and then substitutes a higher cost or lower quality item. Dell promises 'easy' credit but no one qualifies. It then charges unconscionable high interest and other credit charges. These practices must stop."

The case was filed on behalf of a San Francisco nurse who had limited experience with computers when she responded in 2003 to a Dell ad and bought a notebook computer listed at $599, along with an $89 printer. She was billed $1,352 for her order and, at the urging of Dell's sales person, financed her purchase through DFS at an undisclosed interest rate that turned out to be 27.74 to 38.82 percent.

A second plaintiff responded to a Dell email offer by ordering computer products online at http://www.dell.com. He received a confirmation of his order and billing rate, but the products that arrived were of a lesser quality. Efforts to reach Dell and resolve the matter were frustrating and unsuccessful, the attorneys said.

Because Dell equipment and services are sold exclusively by telephone and through Dell's Web site, customers view only pictures of the products prior to sale - never the product itself.

In 2004 Dell spent $300 million advertising its products on TV, in newspapers and catalogues and on the Internet. It shipped 5.4 million personal computers in the United States and generated $6 billion in revenue from U.S. consumers that year.

"Knowing that these consumers are not sophisticated, Dell nonetheless inundates them with a dizzying array of advertisements for Dell products," the complaint says. While the names of the computers, model numbers and pictures are usually consistent, the details of Dell offers vary from one ad to another and even from day to day or hour to hour, with "small print" disclaimers, the suit charges.

The complaint alleges that Dell preys on unsuspecting consumers with its scripted sales force, ever-changing ad offers and highly promoted "preferred" rates and "easy" financing packages which, without notice, then are changed to include much higher interest rates and hidden charges.

Dell is based in Round Rock, TX. CIT, a $50 billion commercial and consumer finance company, is located in Utah.

The suit charges Dell, DFS and CIT with violating California's Consumer Legal Remedies Act (CLRA) by false advertising and bait-and-switch practices; fraud and deceit in its sales and advertising representations; breach of contract by unilaterally modifying terms and conditions of sales and financing; violating the California Business and Professions Code by knowingly distributing false and misleading information; violating the Unruh Act with unlawful retail installment contracts; engaging in deceptive practices in its financing programs; and entering into unlawful contracts and charging excessive finance charges.

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