A.G. Schneiderman Reaches $500,000 Settlement With DirectBuy To Reimburse New York Consumers

NEW YORK – Attorney General Eric T. Schneiderman today announced that his office has reached a $500,000 settlement with DirectBuy, after an investigation revealed the buying club engaged in misleading and deceptive sales practices. Members of the Indiana-based company pay a fee, which entitles them to buy merchandise like furniture, appliances and home goods directly from the manufacturer and its authorized suppliers.Attorney General Schneiderman's investigation found that the company used deceptive tactics to induce consumers to purchase memberships costing thousands of dollars, and then failed to deliver on the savings.

“DirectBuy lured consumers into expensive memberships by promising exclusive member-only deals with substantial savings over retail prices. This company failed to deliver on its promises by taking advantage of consumers who were looking to save hard-earned money," said Attorney General Schneiderman. "Consumers should be wary of offers that seem too good to be true, especially when companies demand consumers make an immediate decision to become a club member or be barred forever. DirectBuy has been held accountable for its actions."

Consumers who were members of any DirectBuy club, whether or not it is still open, may be eligible for restitution. DirectBuy locations in New York are listed below:

• DirectBuy of Albany,
  356 Troy Schenectady Rd., Latham

• DirectBuy of Brooklyn & Queens
  72-25 Queens Blvd 2nd floor, Woodside

• DirectBuy of Long Island
  20 Oser Ave, Hauppauge

• DirectBuy of Rochester
  45 Saginaw Dr., Rochester

• Direct Buy of Westchester County
  2269 Saw Mill River Road, Bldg 1S, Elmsford

• DirectBuy of Greater Buffalo (closed March 2011) 
  Reopened at same location: 4950 Genesee Street, Cheektowaga

• DirectBuy of Dutchess County (closed)

• DirectBuy of Manhattan (closed)

• DirectBuy of Syracuse (closed)

The Attorney General’s investigation found that to attract new members, DirectBuy invited consumers to attend open houses at their club locations, offering free trial memberships and other incentives such as free gifts and prizes. Once at the open house, however, prospective members found that advertised gifts were neither available nor free, and instead they were met with a sales pitch pressuring them into purchasing full priced memberships immediately or forever lose the opportunity to become a member.

Once members, consumers complained that they did not receive the savings promised by DirectBuy sales advertisements and representatives at the open house. Instead, substantial fees and shipping costs, which had not been disclosed prior, wiped out any potential savings. Further, many consumers financed the price of their membership through Beta Finance, a DirectBuy affiliate that was not properly licensed as a retail sales finance company in New York.

Other deceptive practices on the part of DirectBuy included failure to clearly inform consumers that:

• the majority of purchases are through catalogs;
• that most shipments are to club locations rather than members' homes and that the members then had to pay to ship their merchandise from the club to their homes;
• that individual manufacturers, rather than DirectBuy, determine cancellation and refund policies.

In addition, several clubs continued to enroll members knowing that the club would imminently cease operations.

Last year, the Attorney General successfully opposed a nationwide class-action settlement with DirectBuy in Connecticut federal district court because it was inadequate. That settlement would have extended DirectBuy memberships without any monetary compensation for members.

The Attorney General’s settlement agreement prohibits New York DirectBuy Clubs from engaging in the following deceptive practices:

• Misrepresenting the terms of their memberships, the savings consumers will achieve, and the nature and quality of the merchandise that they sell.
• Discouraging consumers from accepting offers of free trial membership by disparaging the terms and conditions of the free trial or otherwise implying that it is not in the consumer's best interest to accept such a free trial.
• Falsely representing that a consumer must sign a membership contract on the same day as the sales presentation or be forever barred from purchasing a membership.
• Comparing its prices to other retailers unless such price comparisons are based on prices of merchandise sold by retailers in the trade area in which the claims are made, and at prices actually offered for sale within 60 days of such representations.
• Referring or reporting to any credit agency, or seeking to enforce any legal action, regarding a consumer's failure to make payment under any membership contract purchased or acquired and currently maintained by a sales finance company not licensed in the State of New York.
• Enrolling consumers as members at club locations when DirectBuy knows or has reason to believe that the location is closing unless consumers are first advised of such fact.

The agreement also requires New York DirectBuy clubs to:

• Maintain a three-day cancellation and refund procedure that is clearly disclosed to consumers.
• Clearly disclose prior to the sale of a membership any costs and fees added to the price of merchandise including, freight and shipping costs, handling fees.
• Maintain proof of all of its savings claims and comparison shopping ads.
• Honor the terms of any gifts or prizes promised in exchange for attending a sales presentation or signing a membership contract.

New York club members who entered into a DirectBuy contract after January 1, 2007, have not purchased $5,000 or more in merchandise or already received a full refund, and have filed a complaint relating to a material aspect of their club membership with the Attorney General, the BBB, or other consumer protection agency or do so by April 1, 2013, are eligible for restitution of their membership fees under the agreement. Consumers who purchased a membership from a now closed New York club location and for whom alternate club facilities are not within a twenty-five mile radius of the closed location may also be eligible for restitution.

Consumers who have not previously filed a complaint and who may be eligible for restitution should file a complaint with the Attorney General by April 1, 2013, to be considered for restitution. Consumers with questions may also call the Attorney General's Consumer Helpline at 914-422-8818.

The Attorney General advises all New York consumers to consider carefully all terms and conditions before enrolling in a buying club membership.

The investigation and settlement were handled by Assistant Attorneys General Stephen Mindell and Ellen Fried, under the supervision of Deputy Bureau Chief Laura J. Levine of the Bureau of Consumer Frauds and Protection, Bureau Chief Jane M. Azia, Executive Deputy Attorney General for Economic Justice Karla G. Sanchez.