By Daniel Workman (reprinted with permission from CreditCards.com).
Many consumers are enticed when they see advertisements touting “Pay absolutely nothing upfront” or “Don’t pay a cent for 18 months” deals. These deferred payment options are a form of financing where consumers often get tagged with hefty interest fees if the purchase item is not paid off within the promotional period.
Credit Counselling Society‘s vice president of operations Gary Tymoschuk says that deferred payment plans often appeal to vulnerable consumers who are impulsive spenders, weak at delaying gratification and less experienced with managing their money and using credit carefully.
“Most people don’t realize that if even one cent is left owing after the payment due date, they will be charged interest on the whole amount they borrowed starting right from the original purchase date,” adds Tymoschuk.
The consumer’s pain doesn’t end there. Buy now, pay later deals usually involve retail credit cards with annual interest rates approaching 30 per cent.
Lawsuit against Leon’s and The Brick. On July 9, Canada’s Competition Bureau filed a legal action against Leon’s and The Brick alleging that the home appliance and furniture retailers had engaged in false or misleading advertising related to their buy now, pay later promotions. The retailers’ card issuer allegedly charged a hidden $35 annual fee to consumers who participated in the promotions.
Option consommateurs, a non-profit consumer advocacy group, started class-action lawsuits in 2009 in Quebec. In a telephone interview, Option consommateurs’ lawyer Dominique Gervais advised that the Leon’s case has yet to be decided. The Brick settled out of court on Nov. 27, 2012, without admitting responsibility for any wrongdoing.
The out-of-court settlement did compel The Brick to reimburse customers for the $35 annual fee that HSBC and Citi charged on credit cards used for buy now, pay later offers.
Ironically, it was solely the credit card companies’ decision to impose the annual fee. But because it was The Brick that had advertised “Don’t pay anything until 15 months” and there was no annual fee mentioned in the deferred payment agreement’s fine print, Option consommateurs filed a class action against the retailer and not HSBC or Citi.
“The Brick announced something so they have to stick to what they advertised,” explains Gervais. “It’s their problem, so they have to deal with it.”
According to Gervais, the class action also persuaded The Brick to change advertising slogans used in Quebec. Plus, the annual fee is now specified in the agreement’s fine print.
Case impact: The Brick’s out-of-court settlement in Quebec doesn’t set a legal precedent for contested advertising practices. In contrast, the court decision in the federal Competition Bureau case will likely have an effect across Canada. “That’s because Leon’s and The Brick have to respect provincial and federal laws,” says Gervais.
Adjunct professor of competition law at the University of British Columbia Steve Szentesi said in an interview that the Competition Bureau’s case highlights four recent advertising trends.
Full upfront pricing: “Over the past year or two, we’ve been seeing increased emphasis and pressure on companies to advertise the full price,” observes Szentesi. Companies should state the price completely, and disclose it as part of the initial advertising.
Transparency: Critical additional information and disclaimers should appear close to the main marketing headline and be clearly brought to the customer’s attention. This is especially important for advertising claims like “No money down” or “Don’t pay until later” that can’t necessarily stand on their own. Otherwise, they risk misleading consumers.
Quick message delivery: Because consumers don’t spend 10 minutes to half an hour parsing through every line of an ad, in advertising general impressions matter. “Your key messages really have to be delivered in 10 or 15 seconds — maybe 30 seconds,” says Szentesi.
No contradictions allowed: Szentesi says another key principle is retailers can add or amplify information in a disclaimer, but the disclaimer shouldn’t contradict the original claim. For example, merchants can’t state in the ad headline “Free” and then in the disclaimer say “There’s a minimum charge.”
Consumer due diligence: To protect themselves, consumers should carefully read advertising materials, all disclaimers and the sales agreement. Szentesi also cautions, “Don’t assume the [advertising] claim corresponds to the agreement that you’re being asked to sign.”
Another issue is some companies argue deferred payment expenses are financing costs that should be excluded from the sale price because they’re not directly related to the product or service provided.
Szentesi maintains that competition law and sections of the Competition Act don’t support that fine distinction. “A deceptive ad is literally a claim to the public that’s either false or misleading to promote a product or a business interest and is material — that is, likely to cause a consumer to buy your offering.”
Complaint mechanisms: Consumers who fall victim to unfair marketing practices have several legal remedies, according to Szentesi.
1. File an oral or written complaint with the Competition Bureau, an independent enforcement agency.
2. Contact their provincial or territorial consumer protection office.
3. Launch a private civil action lawsuit, either singularly or as a class action.
The third option is usually reserved for extreme cases (or commenced by several of Canada’s class action firms). Another alternative is to approach the Better Business Bureau with your case.
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