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DirecTV thrives on 'deception,' lawsuit alleges

A lawsuit filed this week by Washington state against DirecTV could have a secondary purpose: It could serve as a textbook for consumers on tricks companies play to take their money.

The suit filed by Washington Attorney General Rob McKenna alleges so many forms of misbehavior that he thinks DirecTV, the nation's largest satellite TV provider, has "built deception into their business model." In an interview with msnbc.com, he also said that the firm has "left few deceptive tactics unused."

"It's amazing, the wide variety of ways they've taken advantage of their customers," he said.

Much of the case centers on alleged misleading advertisements, and on a series of pricey early termination fees the firm levies on customers.  For example: Aggressive marketing campaigns tout service for $29.99 per month, but leave less clear the two-year obligation attached to the deal,  or that the price almost doubles after the first year, the lawsuit says. After the first year, consumers face a Hobson's choice – either pay the higher price or cough up an early-termination fee of up to $480.

"It is what amounts to a bait-and-switch strategy," McKenna said. "They use a variety of lures to bring people in at prices the customer doesn't actually pay."

But that's just the tip of the iceberg in the complaint, which accuses DirecTV of 16 different causes of action.

Before filing the lawsuit on Monday, McKenna's office had received 375 consumer complaints about DirecTV this year -- more than any other company. Another 59 complaints arrived in the 24 hours after the lawsuit was filed, he said.

In a statement, DirecTV denied the accusations.

"We always strive to provide 100 percent customer satisfaction but, to put it in perspective, we are talking about less than one percent of our customer base in the entire state," it said. "The vast majority of our customers in Washington, and the U.S. for that matter, understand our lease agreement and are happy with our overall service.  We are disappointed that the state elected to file a lawsuit. We believe their allegations lack merit, and we are confident the court will agree with us."

McKenna said he'd been working with DirecTV for months in an attempt to avoid a court battle, and he was surprised DirecTV refused to change its business practices voluntarily.

Other state attorneys general are also considering suing DirecTV, he said, declining to identify them. Earlier this year, a group of 46 states settled a lawsuit with DirecTV competitor DISH Network. The firm was accused of automatically debiting consumers' accounts without their consent. The firm admitted no wrongdoing but agreed to change its business practices and refund $6 million to consumers.

"When we go after a company, it's because we have them dead to rights," McKenna said.  "Most companies just want to settle. ... If DirecTV wants to take on the states, that's their choice."

Here are a few of the other allegations from the complaint:

  • DirecTV requires a 24-month commitment but offers only 12-months worth of discounts. Terms for the offer are spelled out in newspaper ads in 5.5 point-sized fonts, barely readable to the naked eye.
  • The sales scripts used by telemarketers include nothing about the terms and conditions on the discount plan.
  • To receive the $29 monthly price, consumers must use an automatic payment method.  Failure to do so adds $5 to the monthly bill.
  • Customers who refuse a credit check or have bad credit face "hundreds of dollars" in extra fees.
  • In order to get the promotional rate, some customers are required to file rebate forms. The rebate, which is applied as a deduction to monthly bills and spread out over many months, can be voided if a customer is late with a payment, bumping them up to a higher price. Also, some consumers complain that their rebates have been unfairly denied. And because rebates can take time to process, some customers say they were forced to pay a higher price during their first months of service.
  • When consumers complain about defective equipment and the equipment is repaired, their service contract requirement is often renewed without their knowledge for another two years.
  • Consumers report being signed up for a $5.99 monthly service maintenance plan they didn't want. When they cancel, they can be charged a $10 early termination fee.
  • Consumers who are given "Free HBO" stations for a trial period are often rolled into a paid subscription without their express consent. 
  • Consumers who buy a DirecTV unit at an electronics store like Best Buy have been unknowingly enrolled in a lease agreement.  Even thought the units are purchased like any other electronic equipment -- often for around $100 -- the consumers don't own them. If they fail to activate DirecTV service, they can face a $150 "activation failure" fee.  If they turn off the service early, they can face a $480 early-termination fee and must return the unit to DirecTV.

DirecTV's contract with consumers is "so one-sided as to grossly favor the defendants," McKenna said. That's assuming someone can find the contract terms.

But McKenna's office says all these conditions on DirecTV agreements never appear in a single place. Instead, using an approach called "layering," the terms and conditions can appear in various places: on store receipts, on order forms and on the company Web site.

"There's no single form with all the rules," he said.  "That's unfair to consumers."

DirecTV is already facing legal action from consumers on similar issues. A class action lawsuit filed in California earlier this year alleges that the company raids customer bank accounts to collect early termination fees without consumers' consent.  One of the plaintiffs, Mary Cox of Fontana, said a DirecTV customer service agent would only identify himself as "Ding-A-Ling" when she phoned to dispute an unauthorized $430 withdrawal from her account.

DirecTV faces challenges in the marketplace because its customer start-up costs are considerably higher than cable firms.  New satellite users must obtain a set-top box, a dish and expert installation. Without offering free installation, the firm would have trouble matching similar sign-up deals from competitors.  So the firm heavily subsidizes start-up equipment costs, and has adopted tactics similar to those used by cell phone carriers to ensure that its setup subsidies aren't wasted.

Despite such tactics, the firm is facing stiff competition for its 17 million subscribers. In its most recently reported quarter, DirecTV told investors that its losing customers at a "monthly churn rate of 1.72 percent."  The firm blamed aggressive competitor promotions and "stricter" retention policies that "tighten up our offers to existing customers."

Red Tape Wrestling Tips

If you feel you've been treated unfairly by DirecTV, contact your state attorney general immediately. If a case is filed in your state, those with complaints on file will be the first in line to receive restitution should the states prevail.

If you are considering DirecTV -- or any pay TV service -- read this complaint carefully. (PDF) All the pay TV services have conjured up complicated trial offers, tricky rebates and so on.  The DirecTV lawsuit is an excellent summation of the kinds of things to watch for.

Discount trial offers -- say, $29.99 service for 12 months -- are excellent, but know when you sign up that you are playing a game. It critical to remember when you signed up, so you can switch services or ask for another discount before the higher rate kicks in. One idea: Put a small sticky note on your cable or satellite box with your discount end date, so you don't forget. And of course, always ask about early termination fees.

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