DIRECTV offering refunds amid accusations of unfair practices

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 msnbc.com, 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.

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.