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BlueHippo: A Short History

8,000 FTC Complaints ... and Counting

By Joseph S. Enoch
ConsumerAffairs.com

January 8, 2007

BlueHippo Funding An Investigative Series by Joseph S. Enoch • BlueHippo: Extreme Layaway • A Short History • The BlueHippo Foundation • Trouble Follows BlueHippo's Founder • What Should You Do? • BlueHippo's Response • BlueHippo Has Many Clones --- News • Gateway at Risk in BlueHippo Class Action • Blue Hippo Pays $5 Million To Settle FTC Charges • Federal Court Strikes Blue Hippo's Arbitration Clause • BlueHippo Funding Settles $1 Million Maryland Case • West Virginia Sues Blue Hippo • Class Actions Target Blue Hippo • Consumer Complaints

BlueHippo's CEO lost a lot of money and was wrapped in scandal with his previous company, Creditrust. But BlueHippo is now nearly four years old and although the company faces legal challenges, the profits don't seem to be affected.

Joseph Rensin formed BlueHippo in April 2003 and almost immediately the company's signature commercials saturated TVs across America.

Ten months later the Better Business Bureau (BBB) of Maryland had received 60 complaints about the company and the Maryland Attorney General started taking note of its growing stack of BlueHippo complaints. As of this writing, ConsumerAffairs.com has received nearly 100 complaints.

"It's not unusual to receive complaints about a company, but this is a large volume to receive in a short time," Tracy Bickel, a spokeswoman for the BBB told The Baltimore Sun in Feb. 2004. "In six months, we have received 60 complaints."

In an attempt to better evaluate BlueHippo, the BBB requested a list of 200 satisfied customers in Feb. 2004. So far BlueHippo has not provided that list.

Since 2005, the company has had to defend itself against two class action lawsuits, a probable Federal Trade Commission (FTC) investigation, a probe by the Florida Attorney General and a lawsuit filed by the Illinois Attorney General.

In August 2006, the FTC subpoenaed Wachovia Bank's records relating to BlueHippo, according to a letter from FTC Secretary Donald Clark posted on the agency's website. BlueHippo, according to the letter, said the records were irrelevant to whether it had violated laws against deceptive mail or telephone ordering, and it tried unsuccessfully to quash the order. As recently as March 2006, the FTC was collecting evidence from consumers.

Although FTC spokesman Frank Dorman said he can't comment on whether there is an investigation taking place, in the letter posted on the FTC website, Clark refers to an "investigation."

ConsumerAffairs.com filed a Freedom of Information Act (FOIA) request for all documents relating to that "investigation" and any complaints the FTC has received. According the FTC's response to our request, much of that information is exempt from FOIA because it "could interfere with the conduct of the Commission's law enforcement activities."

The one line of information the FTC was able to share was: "There are approximately 8,000 pages of consumer complaints related to BlueHippo."

Although BlueHippo tried unsuccessfully to get the FTC not to look at bank records, the company has begun taking defensive measures. It recently split itself recently into a group of companies collectively called Edison Worldwide.

BlueHippo/Edison executives repeatedly refused to comment on the new corporate structure. However, the company's Website says the venture consists of these familiar pieces:

• BlueHippo Funding -- sells computers;
• Digital Boulevard -- sells plasma TVs;
• Dynamic Brands -- produces and places advertising that targets low-income individuals;
• Edison Response -- the call center;
• Member Billing -- the bookkeeping and collections arm;
• BlueHippo Foundation -- donates computers to a handful of local charities.

Class Actions

Meanwhile, there have been two class action lawsuits filed, one in Maryland and the other in California.

According to court documents, the Maryland case was dismissed and sent to binding arbitration, crushing any hopes of the suit earning class status.

Forced Arbitration • Court Rules Credit Card Arbitration Lawsuit Can Go Forward • Court Throws Out T-Mobile's Forced Arbitration Clause • Mandatory Arbitration Stacks Deck Against Consumers • Appeals Court Shreds AT&T Arbitration Clause • Court Rules for Consumers in Arbitration Challenges • Texas Court Invalidates KB Home's Forced Arbitration • North Carolina Court Strikes Down CitiFinancial's Arbitration • Suit Says Banks Conspired to Force Consumers Into Arbitration • Arbitrator Declares Class-Action Ban Unfair • Homeowners Hung Out To Dry By Arbitration Clauses • Supreme Court Upholds AT&T Customers' Right to Day in Court • AT&T Can't Require Arbitration, Court Rules • Judge Overturns PayPal Arbitration Policy • W. Va. Court Rejects Forced Arbitration • Chevy Chase Ruling Casts Doubt on Arbitration Clauses • Consumers Unwittingly Giving Up Their Right to Sue

Binding arbitration is the process of mediating the dispute between a consumer and a business outside of the courts, almost always using an arbitrator chosen by the business. Although the practice flourish during the Bush years, a recent U.S. Court of Appeals ruling held in favor of a franchise operator who had sued to overturn an arbitration clause in her franchise agreement.

Businesses prefer to resolve claims through binding arbitration because it is more private, avoiding possible bad publicity. It is also much less expensive for the company -- though not for consumers, who may have to travel great distances to use the arbitrator chosen by the company.

According to the court documents, this case was sent to arbitration because of a clause in the contract that BlueHippo mails to its customers that states, "Any dispute between us arising out of this agreement or the breach of this agreement ... may at the choice of either party, be determined by individual (and not class) binding arbitration."

The case in California is still pending.

Both lawsuits contend that BlueHippo's practices violate state consumer laws, according to David Marshall, a Washington state consumer lawyer who filed the California case.

"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," Marshal said in a Baltimore Sun story published in March 2006. "That's the reason we are doing this lawsuit."

Customers aren't told of critical sales terms, such as the price of the computer. And those who back out of the deal never get a computer or the return of their money, the California lawsuit states.

"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.

States Take Action

State attorneys general also have similar complaints.

Illinois Attorney General Lisa Madigan filed a lawsuit in November 2005 against BlueHippo after 15 Illinois residents complained about the company's practices.

"Using deceptive marketing and sales tactics, BlueHippo targeted vulnerable consumers with poor credit histories and led those consumers to believe they were purchasing affordable electronics when, in fact, they were paying as much as three times the actual retail price," Madigan said in a prepared statement.

That case is still pending and Scott Mulford, Madigan's spokesman, said his office has now received 25 total complaints.

Florida's attorney general office launched an investigation in December based on 11 consumer complaints. "Nobody's been really happy with the service," JoAnn Carin, a spokeswoman from the Florida Office of the Attorney General said. "They failed to disclose the actual cost of the computer and the services that they provide."

Blue Hippo Responds

In response to the stacks of negative press and lawsuits against BlueHippo, the company formally announced a new "Best Practices" program in May 2006 to "set industry standards in disclosure, quality assurance, and customer service," according to a BlueHippo press release.

Under this Best Practices program, BlueHippo says it will mail the contract two days after making a phone or Internet sale. However, all the contract really says is that BlueHippo will ship the computer before the $2,000+ full payment is made. According to the press release, the contract for the sale is still made verbally over the phone.

But ConsumerAffairs.com has received five recent complaints from individuals who say that BlueHippo started drafting payments immediately while it took weeks or months for any written contract to arrive.

The Best Practices program also promises that BlueHippo call center employees will "undergo an intensive, multi-day training and evaluation session."

The program also offers a "unique" Escalation Unit which allows a customer to ask to speak to a manager.

Finally, the program promises to call customers two days after the sale to make sure they understand the terms of their agreement. Of the nearly 100 BlueHippo complaints in the ConsumerAffairs.com database, no one has ever reported receiving such a call.

Marshal, the lawyer representing the California lawsuit told The Sun that the Best Practices program changed nothing.

"BlueHippo is a company that makes its money by taking hundreds of dollars each from thousands of consumers," said Marshall, "BlueHippo debits consumers' checking accounts and doesn't provide anything in return."

Then in June 2006 BlueHippo responded to consumers who complained about the total lack of a refund policy by offering a refund program with a catch -- a $175 early termination fee.

The program allows for customers to get their money back during the 13-week layaway period and is the first refund policy BlueHippo has ever offered. However, consumers are still saying that they are not receiving refunds during the layaway period.

ConsumerAffairs.com has received at least 10 recent complaints from individuals who could not get a refund.

"I was initially interested in getting a computer through BlueHippo," Tamika of Jersey City, N.J. wrote. "Once I read the terms I decided not to proceed. However, my account has continually been debited. I contacted them on Nov. 24, 2006, spoke to a supervisor who advised me I cannot receive a refund despite what is being advertised online. They let me know flat out they will continue to debit my account."

Marshall said the refund policy is BlueHippo's attempt to avoid legal problems.

"BlueHippo is attempting to escape liability for having stolen millions of dollars from consumers by announcing a policy under which it will now take only $175 from each consumer who decides to cancel their contracts," Marshall told The Sun.

The $175 fee is similar to cancellation fees charged by cell phone providers, Michael Waldron, a spokesperson for BlueHippo told The Sun. However, if it's like most cell phone provider early cancellations, most consumers probably will not be pleased, not to mention that with cell phones, at least consumers get something during the period before they terminate the contract.

Despite BlueHippo's attempts at evening the balance with some positive-looking news, it still seems to bode poorly for consumers.

While Rensin is living comfortably in a $780,000 home in Maryland, according to the Maryland Department of Assessments and Taxation, ConsumerAffairs.com receives complaints on an almost daily basis on the company that pays for Rensin's lifestyle.

But at least he's sharing some of that wealth, right?

Next: The BlueHippo Foundation -- What Has It Accomplished?

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