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FTC Issues Rebate Warning To Retailers

The Federal Trade Commission (FTC) has ordered CompUSA to make good on hundreds of thousands of dollars in unpaid rebate claims, and it used the occasion to warn all retailers that they will be held accountable for rebates they advertise, including those sponsored by vendors.

The action against CompUSA stems from the failure of thousands of consumers to receive advertised rebates in a timely manner — or at all — between September 2001 and July 2002. Some of the rebate offers, ranging from $3 to $100, were developed by CompUSA for its own private label products, while other programs were funded by manufacturer Q.P.S. Inc. for its QPS line of computer peripherals.

The FTC contended in its complaint that CompUSA was aware of Q.P.S.’s fulfillment failures, but continued to advertise the vendor’s rebates until just before the company filed for bankruptcy in August 2002.

The settlement, announced last week, forces CompUSA to pay all past due rebate requests, bars Q.P.S.’s principals from engaging in future rebate programs, and compels CompUSA to substantiate and adhere to the promises of its advertised offers.

The case marked the first time that the FTC took a national chain to task over its rebate advertising practices, and served as a warning shot to all dealers. “When it comes to rebates, retailers must deliver promises,” said Lydia Parnes, acting director of the FTC’s Bureau of Consumer Protection. “The message to retailers is clear — the FTC is on the beat and will take action if you advertise manufacturers’ rebates when you know they aren’t honoring their promises.”

Rebate programs are particularly prevalent within CE and computer retailing. Vendors like their historically low redemption rates (estimated at about 30 percent), while dealers can advertise sharp promotions yet still charge full price. But despite efforts by some retailers like Circuit City to streamline the redemption process through online submissions and tracking, many consumers find the more common mail-in procedure confusing, time-consuming and, sometimes, dysfunctional.

Industry observers anticipate that retailers will begin reducing their reliance on rebates in the wake of CompUSA’s settlement.