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Rebate Madness - How to Avoid the Rebate Trap

How to defend yourself against ruthless rebate scams

By Stephanie Moore

What a deal! A mail-in rebate of $100 on a $125 cell phone! Only $25 for the latest bells and whistles you think, "I have to have that." Then you see a huge rebate on that new computer, DVD player or 92" Plasma TV, and can't write your check fast enough. You mailed in your rebate form but months have passed and you've never gotten your check; you've called the company, written angry letters, but to no avail.

The company either sent you a denial letter, or gave you all sorts of reasons you won't be getting your rebate: you didn't purchase it within the correct time frame, or mail it correctly, forgot to include some obscure piece of information or the bar code, whatever you failed to jump through their hoops, and now you're out of luck.

Why are rebates so terrible?

The traditional answer is that rebates are actually intended to be a hassle to discourage customers from redeeming them. After all, the more customers who forget or give up on rebates, the more dollars the manufacturer retains.

Rebate redemption rates never hit 100 percent. They rates generally range from 5 percent to 80 percent, depending on the value of the rebate. While vendors have accelerated nearly every other aspect of the purchasing process in recent years -- from overnight shipping to 24/7 instant chat support -- rebates are still stuck in the stone age to discourage redemption.

This is hardly a secret in the business world. In fact, it's discussed openly in the trade press. "Rebates are a good business plan only when consumers fail to claim them," ARS analyst Gary Peterson recently told The Wall Street Journal.

In truth, the companies don't process their own rebate offers they hire companies to do it for them, many using "at-home" data entry people. These companies count on your forgetting to send in rebates, filling the form out wrong, mailing it late, or missing the small print about including bar codes or packing slips, or a piece of your dog's hair.

Over $500 million in rebates go unfilled every year, many due to deceptive practices on the part of the companies or their "promotions companies."

Enforcement agencies occasionally take action but most of the prime offenders are large companies with huge legal departments and, dare we say it, scads of political influence.

In five years, the Federal Trade Commission has taken action against a relatively small number of offenders. They include Iomega, Memorex disk producer Memtek Products, scanner maker UMAX Technologies and Okidata, all for nondelivery of rebates. It dinged Philips Electronics, Office Depot and Value America for late delivery. Buy.com was cited for deceptive advertising that promised free Internet service with computer purchases without explaining that a three-year contract was required.

Part of the problem is the question of who's issuing the check. Confusion over where rebates originate leaves consumers unable to target the problem and get it fixed.

Manufacturers offer most rebates, although occasionally retailers offer them. But consumers usually aim their frustration at the industry that manages rebates, called fulfillment companies. These companies handle the details, but it's not their money. They collect the rebate forms and proofs of purchase and then tell the manufacturer (or the retailer) what he owes. When the manufacturer pays up, the fulfillment house cuts the checks and mails them to the consumers.

One of the largest fulfillment houses, TCA of New Rochelle, N.Y., lists slow-paying manufacturers and retailers as one of the key reasons why it takes so long for consumers to get their money. "Customers get upset with us when it's really a manufacturer's or a retailer's problem," a TCA employee who insisted on anonymity said recently.

Next: What You Can Do

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