By Herb Weisbaum ConsumerMan contributor
updated 12/30/2010 2:18:23 PM ET 2010-12-30T19:18:23

Many Happy Returns. Thousands of unhappy satellite TV customers around the country will get refunds in the New Year, courtesy of DIRECTV, the nation’s largest satellite TV service.

DIRECTV also promises to change the way it does business. It took a lot of prodding for this to happen: A DIRECTV lawsuit filed by Washington State and a multi-state investigation led by the Attorney General in Tennessee.

Two weeks ago, DIRECTV settled allegations (made by all 50 states and the District of Columbia) that since 2007 it used “deceptive and unfair” marketing practices.

“At a time when people are trying to cut back on expenses, it is important that businesses clearly explain the terms of their service contracts,” said Tennessee Attorney General Robert Cooper in a statement.

DIRECTV holds the dubious honor of having more consumer complaints (about 2,000) filed with the Washington State Attorney General’s office than any other company between 2006 and 2010. In its lawsuit, the state accused DIRECTV of “unconscionable” sales practices.

“We believe that acting in ways that we found to be unfair and deceptive was part of their business model,” Washington AG Rob McKenna tells me.

His lawsuit claimed pricing information “was not adequately disclosed” in the company’s ads or by its telephone sales representatives.

For example, DIRECTV would advertise a monthly price of just $29.99, but didn't always make it clear that this low price was based on a rebate. Also, while the deal required a 2-year contract, the promotional price was good for only 12 months, something else that was often hidden in the fine print.

“We had people complaining that they’d get bills for $50, $60 or $70 when they thought they were only going to be charged $29.99,” says Paula Selis, Washington State’s senior assistant attorney general, who handled the case. “And the company was pretty unwilling to work with people to straighten that out.”

Major allegations
Here are some of the major allegations of unlawful behavior listed in court papers.

  • DIRECTV did not clearly disclose the true cost of the service and that the initial contract was for two years.
  • It did not make it clear that a sizeable early termination fee would be charged if the service was canceled before the two-year period ended.
  • It extended customers’ contracts without authorization when defective equipment was replaced. Misrepresented the availability of sports programming and did not clearly disclose that seasonal sports packages would automatically renew unless canceled.
  • It advertised “free” HD or DVR equipment, but charged $6 to $8 a month for this “upgraded” service.

New way of doing business
DIRECTV has promised the courts it will change its business practices – institute new procedures and stop some previous practices – to ensure potential customers are well-informed about the terms of service and any promotional price or offer.

In an email to, company spokesman Darris Gringeri downplayed the significance of these settlements.

“The fact is, we were implementing the majority of these improvements long before the AGs even brought this to our attention,” he writes. “When our customers let us know there are issues, we decide on our own to fix them, we don’t wait for the AGs to come to us. So while some AGs are grandstanding, we’d rather focus on the customer and move forward with giving them the best service possible.”

While DIRECTV did not admit any wrongdoing, under the settlements it is legally bound to do a number of things. From now on, material terms such as the cost of service, contract length and cancelation penalties must be clearly disclosed next to the price in every advertisement

DIRECTV’s ads are also required to clearly disclose whether a rebate is required to get the promotional price. If the first bill does not reflect the price agreed at the time of sale, DIRECTV must adjust the price or cancel the contract, if requested, without any penalty. If the price difference is because the customer did not properly apply for the rebate, DIRECTV must help with that.

But the agreement covers much more than advertising. From now on DIRECTV:

  • Will not charge a cancelation fee if a customer ends services because of a recurring problem that cannot be fixed.
  • Cannot require a customer to enter into a new or extended contract when simply repairing or replacing defective equipment. A customer must knowingly agree to any contracts extension.
  • Will disclose any limitations to the availability of sports programming or local channels.
  • Give customers 30 days notice before any seasonal sports package is automatically renewed.

Ad-itude adjustment
DIRECT TV says it is already adjusting its ads to give more prominent placement to specific details on offers. This includes placing phrases in direct proximity to the offer such as “after rebate,” “with 24 month agreement” and “fees apply” when applicable.

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Millions could be refunded to unhappy customers

The settlement is good news for Jessica Twardzik of Seattle, who filed a complaint with the Washington State Attorney General’s office. She tells me she switched from cable to DIRECTV because their advertised prices were better.

But after the satellite dish was installed, the signal kept going out and the repair people who came to her house could not fix the problem. After six weeks of intermittent TV service, she called the company to cancel. Twardzik says she was never told she had agreed to a two-year contract and that she would be hit with a whopping cancelation fee of $458. She refused to pay and was sent to collection.

“It was the worst customer service I ever received in my life,” Twardzik says, “and I’ve worked in customer service my whole life.”

DIRECTV has agreed to resolve complaints already filed about problems that took place after January 1, 2007. Unhappy customers are eligible for a refund or other relief. Those who have not formally complained have until June 9, 2011 to do so with their state attorney general or consumer protection office. For Washington state residents the deadline is May 31, 2011. If the company cannot resolve the complaint, the consumer can take their case to a claims administrator who will issue a decision.

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Explainer: The top 10 business stories of 2010

  • Image: BP CEO Tony Hayward surveys gulf spill repair work

    In 2010, the economy rebounded fitfully from the Great Recession — starting strong, wobbling at midyear but showing enough vigor by year's end to quell fears of a second recession. Yet Americans hardly felt relief under the weight of high unemployment, which began the year at 9.7 percent and is now 9.8 percent.

    An oil spill devastated the economy and environment along the Gulf Coast and hammered energy giant BP's stock price and reputation.

    China muscled past Japan to become the world's No. 2 economy, a reminder that the global economic order is shifting and America's supremacy is diminishing.

    It was a year of job shortages and swollen budget deficits that disheartened Americans and caused deep losses for incumbent Democrats on Election Day. The Federal Reserve tried with scant success to jolt the economy with record-low interest rates.

    The struggling economy was voted the top business story of the year by U.S. newspaper editors surveyed by The Associated Press. The oil spill in the Gulf came in second, followed by China's economic rise.

  • 1. Economy struggles

    Image: Unemployment brochures are seen on display at the employment training facility, JobTrain, in Menlo Park, Calif.,

    Climbing out of the deepest recession since the 1930s, the economy grows at a healthy rate in the January-March quarter. Still, the gain comes mainly from companies refilling stockpiles they had let shrink during the recession. The economy can't sustain the pace. The lingering effects of the recession slow growth.

    The benefits of an $814 billion government stimulus program fade. Consumers cut spending in favor of building savings and slashing debt. Businesses hesitate to hire. Cities and states lay off workers. Growth slows through spring and summer.

    Unemployment stays chronically high. In May, the number of people unemployed for at least six months hits 6.8 million — a record 46 percent of all the unemployed.

    Pointing to the deficits, Congress resists backing more spending to stimulate the economy. The Federal Reserve seeks to fill the void by announcing it will buy $600 billion in Treasury bonds to try to further lower interest rates, lift stocks and coax consumers to spend.

    As the year closes, the economy makes broad gains. Factories produce more. Consumers — the backbone of the economy — return to the malls. Congress passes $858 billion in tax cuts and aid to the long-term unemployed. Yet more than 15 million Americans are still unemployed. Economists say a full economic recovery remains years away.

  • 2. Gulf oil spill

    Image: Plaquemines Parish coastal zone director P.J. Hahn lifts his boot out of thick beached oil at Queen Bess Island.

    An explosion at a rig used by BP kills 11 workers and sends crude oil gushing into the Gulf of Mexico. The spill devastates the fishing and tourism industries along the Gulf Coast and causes environmental damage that may last for decades. BP sets up a $20 billion fund to compensate fishermen, restaurateurs and others whose livelihoods were damaged.

    The oil giant still faces civil charges and a criminal investigation by the Justice Department and lawsuits from hundreds of individuals and businesses. BP's stock market value shrinks by more than $100 billion after the April 20 disaster before bouncing about halfway back.

  • 3. China's rise

    Image: Workers install scaffolding at a construction site as a Chinese national flag flies near by in central Beijing.

    China passes Japan as the world's second-biggest economy. The World Bank says it could surpass the United States by 2020. China's gross domestic product is spread out over 1.3 billion people — amounting to about $3,600 per person. That compares with GDP in the U.S. of about $42,000 per person. In Japan, it's about $38,000 per person. China's thirst for raw materials and other products helps the rest of the world recover from the recession. Still, the U.S. and Europe complain that China gives its exporters an unfair competitive edge by keeping its currency artificially low.

  • 4. Real estate crisis

    Image: Home for sale

    Housing remains depressed despite super-low mortgage rates. The average rate on a 30-year fixed mortgage dips to 4.17 percent in November, the lowest in decades. But home sales and prices sink further. Nearly one in four homeowners owe more on their mortgages than their homes are worth, making it all but impossible for them to sell their home and buy another.

    An estimated 1 million households lose their homes to foreclosure, even though the pace slows after evidence that lenders mishandled foreclosure documents. Some did so by hiring "robo-signers" to sign paperwork without checking their accuracy.

  • 5. Toyota recall

    Image: Toyota Master Service Technician Mike Blomberg inspects a gas pedal assembly.

    Toyota's reputation for making high-quality cars is tarnished after the Japanese automaker recalls 10 million vehicles for sudden acceleration and other problems. Toyota faces hundreds of lawsuits alleging that some models can speed up suddenly, causing crashes, injuries and deaths. Toyota blames driver error, faulty floor mats and sticky accelerator pedals for the unintended acceleration. The uproar damages its business. Toyota's U.S. sales rise just 0.2 percent through November in a year when the industry's overall sales climb more than 11 percent.

  • 6. GM's comeback

    Image: GM headquarters

    General Motors stock begins trading again. It signals the rebirth of a corporate icon that fell into bankruptcy and required a $50 billion bailout from taxpayers. GM uses some proceeds from its November initial public offering to repay a portion of its bailout. (Washington still holds about a third of GM's stock.) GM's recovery helps rejuvenate the industry. Sales of cars and light trucks rise 11 percent through November compared with the same period in 2009. Shoppers who had put off replacing their old cars return to showrooms.

  • 7. Financial overhaul

    Image: Barack Obama, Christina Romer, Timothy Geithner, Barney Frank, Paul Volcker

    Congress passes the biggest rewrite of financial rules since the 1930s. The law targets the risky banking practices and lax oversight that led to the 2008 financial crisis. The law creates an agency to protect consumers from predatory loans and other abuses, empowers regulators to shut down big firms that threaten the entire system and shines more light into markets that have eluded oversight. Republican critics say the law goes too far, imposing burdensome rules that will restrict lending to consumers and small businesses.

  • 8. European bailouts

    Image: Athenians walks behind a board showing exchange rates at a foreign currency exchange shop in Athens on Wednesday.

    Greece and Ireland require emergency bailouts, raising fears that debt problems will spread and destabilize global markets. European governments and the International Monetary Fund agree to a $145 billion rescue of Greece in May and a $90 billion bailout of Ireland in November. The bailouts require both countries to slash spending, triggering protests by workers. Investors fear that debt troubles will spread to Spain, Portugal and other countries, weaken the European Union and threaten the future of the euro as its common currency.

  • 9. 500 million Facebook users

    Image: Mark Zuckerberg

    Facebook tops the 500-million-user mark. It expands its dominance of social media and further transforms how the world communicates. If it were a country, Facebook would be the world's third-largest. Facebook tightens its privacy settings after criticism that personal information is being disseminated without users' knowledge or permission. Founder Mark Zuckerberg is named Time magazine's "Person of the Year" and is the subject of a high-profile movie about Facebook's creation.

  • 10. iPad mania

    Image: Customer uses an Apple iPad
    AP file

    Apple Inc. unveils the iPad, bringing "tablet" computing into the mainstream and eroding laptop sales. Apple is expected to sell more than 13 million iPads this year. The iPads sell about twice as fast as iPhones did after their 2007 introduction. The price of Apple stock rockets more than 50 percent in 2010. Competitors scramble to try to catch up. They include the Dell Streak, BlackBerry PlayBook, the Samsung Galaxy Tag and HP Slate.


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