Settling FTC Complaint, PeoplePC to Pay $100,000 for Alleged Violations of Commission's Mail Order and Pre-Sale Warranty Availability Rules

PeoplePC, Inc., a San Francisco, California-based seller of personal computers, computer peripherals, software, and Internet service, will pay a $100,000 civil penalty to settle Federal Trade Commission charges that it failed to tell thousands of consumers in advance that their deliveries would be delayed, provide them with an opportunity to cancel or consent to the delay, or send them cancellation refunds within the time-frame required. In addition to these alleged violations of the Mail or Telephone Order Merchandise Rule (Mail Order Rule), the FTC's complaint contended the company violated the Pre-Sale Availability of Written Warranty Terms Rule (Pre-Sale Availability Rule) by not "clearly and conspicuously" providing consumers with the warranties covering the products or services they purchased, or information on how the warranties could be obtained, before the purchases were made. Today's action marks the second time the FTC has brought a Pre-Sale Availability Rule complaint against a company selling a product over the Internet.

"Whether you're selling merchandise through the mail, on the phone, or over the Internet, you've got to meet your shipment or delivery promises," said J. Howard Beales III, Director of the FTC's Bureau of Consumer Protection. "If you can't, you've got to give consumers a chance to cancel their order or agree to the delay. Additionally, merchants offering a warranty must provide it in full text - or at least let your customers know where to get a copy for free."

Beales noted that warranty terms are particularly important to PC purchasers given the expense and complexity of the equipment, and the wide array of service and repair options offered. Fortunately, he noted, warranty information is also particularly easy and cheap to provide to consumers in the Internet environment. Under the Rule, for consumer products costing more than $15, either the full text of the written warranty must be provided pre-purchase, or it must be noted that the written warranty can be obtained free upon written request, and a contact address provided. By failing to comply with the Rule's provisions, the Commission contended, PeoplePC engaged in a deceptive act or practice in violation of the FTC Act.

In its allegations that the company violated the Mail Order Rule, the Commission said that while People PC made express delivery representations to consumers over the phone, on the Internet, and in brochures and contracts - including the claim that "your computer will arrive in two or three weeks" - thousands of consumers received shipments beyond this time-frame, and many received no notice that their order would be delayed. In addition, the FTC stated that during this delay, PeoplePC did not inform consumers of their right to cancel due to the delay or provide refunds when the Mail Order Rule would have required cancellation.

Terms of the Consent Decree

Under the terms of the consent decree filed today, PeoplePC will be required to comply with both the Mail Order Rule and Pre-Sale Availability Rule in the future, and will be required to pay a $100,000 civil penalty. The decree contains terms permitting the company to pay the penalty in two payments of $50,000 each, if necessary. The first payment would be due on the date the decree is entered by the court, and the second would be due on or before December 31, 2002. In addition, the consent decree contains standard record-keeping and reporting provisions to ensure PeoplePC's compliance with its terms.

The Commission vote to approve the complaint seeking civil penalties and the settlement was 5-0. The complaint and consent decree were filed by the DOJ on the FTC's behalf in the United States District Court for the Northern District of California on August 22, 2002.

NOTE: This consent decree is for settlement purposes only and does not constitute an admission by the defendant of a law violation. Consent decrees have the force of law when signed by the judge.

Copies of the complaint and consent decree are available from the FTC's Web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC works for the consumer to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop and avoid them. To file a complaint, or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1-877-382-4357), or use the complaint form at http://www.ftc.gov. The FTC enters Internet, telemarketing, identity theft and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.

FTC File No. 012-3045)