Cagey Consumer

PC Rebate Offers Ignore Truth-in-Lending Act

Since Compuserve and AOL began offering $400 rebates for consumers purchasing certain computer systems, it's hard to find a major computer retailer that advertises computers without including the $400 price reduction.

But you only become eligible to receive that $400 price reduction if you agree to spend nearly $800 in internet service fees over the next 3 years. Some of these ads may cross the line of what is legal. For instance, a recent Staples ad described the after-rebate cost of $100 as "your final cost"... but with the internet service fees included, the total cost would have been about $900.

The companies offering these deals may have crossed another line besides that of deceptive advertising: they may have crossed the line that turns this offer into an extension of credit.

That's because that $100 computer from Staples would have cost $500 without signing up for the service, and the price reduction is obtained by agreeing to a series of payments over the next 3 years. It's not really any different from buying a car over time: you make a down payment and then you make monthly payments for the next several years.

But when you buy a car on time, the Federal Truth-in-Lending Act requires a series of loan disclosures. These disclosures include the total cost with all finance charges, and the APR, or annual percentage rate. None of these disclosures are provided with the computer deals, but if they were, they would reveal an annual percentage rate of about 51%.

The FTC has yet to comment on this issue. But if they fail to act on this, the door will be open to many lending abuses, and the Truth-in-Lending Act will be seriously undermined.

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Updated September 12, 1999