Attorneys General Oppose DirectBuy's Settlement

The attorneys general of 35 states, the Commonwealth of Puerto Rico and the District of Columbia, are objecting to the settlement of a private, class-action lawsuit against DirectBuy, Inc., because they say it offers no real benefit to consumers.

DirectBuy stores are independent franchises that charge thousands to join, as well as yearly fees. Customers are told they can purchase goods from manufacturers and suppliers at actual wholesale cost.

The lawsuit accused Indiana-based DirectBuy of fraudulent misrepresentation because the company allegedly received kickbacks and incentives from suppliers and manufacturers, which inflated the cost of the goods. The lawsuit alleged that DirectBuy did not disclose this arrangement to customers until early 2009.

Attorneys general took issue with the proposed settlement in a 36-page brief filed in U.S. District Court in Connecticut. The brief was signed by at the attorneys general of Connecticut and Tennessee, with other attorneys general listed as supporters.

“The proposed settlement is, in essence, a sales vehicle for defendants designed to drive current and former customers into membership renewal contracts and to the same manufacturers and suppliers from whom defendants have acknowledged receiving kickbacks and incentives,” they wrote.

The attorneys general say they have received numerous complaints from consumers who paid as much as $5,530 to become members of DirectBuy.

The attorneys general say the proposed settlement would not prohibit similar conduct by DirectBuy in the future and the proposed attorneys’ fees were excessive and disproportionate compared to ”the scant relief” offered to consumers.

A hearing on the proposed settlement is scheduled for May.