Don't get ripped off by a rebate 'deal'

By Melinda Fulmer

The pitches are irresistible: Get a $100 hard drive for $30 after rebate. Score the latest $150 cell phone with digital camera for nada. Make $10 by mailing in a rebate form for virus-protection software.

Rebates like these have become pervasive as retailers and manufacturers look for ways to discount without permanently marking down the prices of their products.

Now, nearly a third of all computer products and 20% of electronics, such as digital cameras and flat-screen TVs, are sold with rebates, according to the NPD Group. In part, that's because only an estimated 50% to 70% of buyers redeem them.

But these discounts are not always the sure bargains that consumers think they are. Many manufacturers and retailers have come under scrutiny for delaying payment, imposing hard-to-fulfill restrictions or making forms too complex -- and therefore, too easy to reject.

In Vic Giannini's case, the rebate check came, but it couldn't be cashed. The Akron, Ohio, retiree received the $45 rebate he was promised for purchasing a Maxtor hard drive from online retailer Tiger Direct. After he deposited the check, he got a notice from his bank, stating that the account with Tiger Direct's fulfillment house, Onrebate.com, could not be found. To make matters worse, the bank charged him a $25 fee for processing the invalid check.

"Then I was out $70," Giannini complained. He says he called and e-mailed both Tiger Direct and Onrebate.com, and got no response.

So Giannini posted a report complaining about his experience on www.ripoffreport.com and threatened to file a complaint with the Federal Trade Commission, the primary agency overseeing rebate abuse. Onrebate.com has since offered to cut Giannini a new check.

"What they are banking on is (that) you aren't even going to bother," Giannini said.

More hoops, more hassle

Indeed, while analysts say it is easier than ever to track the status of your rebate both online and through 800 numbers, rebate rules and forms have gotten more complicated.

"They make it so you have to jump through all these tiny little hoops," said Ed Magedson, editor and founder of the Ripoffreport.com. "And then when you do, they say you didn't get it there on time."

With consumer complaints to the FTC and Better Business Bureau escalating, regulators are ramping up their scrutiny of rebates.

The FTC has fined a handful of companies for failing to pay consumers or for paying them late. Last year, it settled its first case with a retailer, Dallas-based CompUSA, for knowingly advertising rebates from computer peripherals manufacturer QPS Inc., even after CompUSA officials knew the manufacturer wasn't paying the rebates or was paying them as much as six months late. Indeed, the FTC said CompUSA continued to advertise the rebates until shortly before QPS filed for bankruptcy protection in August 2002.

Now, after settling with the FTC, CompUSA must advertise a specific time frame for rebates. The retailer must also bear financial responsibility for any rebates not paid during the time specified.

A CompUSA spokesman declined comment on the settlement, other than to say, "We feel we do an excellent job of fulfilling rebates to the benefit of our customers."

However, at least one customer says CompUSA's rebate problems haven't been solved.

Bill Rubin, a 40-year-old operations manager in Yorktown Heights, N.Y., is still waiting for $56 of the $161 in rebates he was promised last August after a $195 purchase of Hawking Technologies networking equipment at CompUSA. Both Hawking Technologies and CompUSA say the money is on its way -- after many complaints -- but Rubin is still waiting, long past the promised 10- to 12-week window.

"You learn your lessons from some of this stuff," Rubin said. In this case, he said, he will never buy Hawking products again and will look twice to see who's handling a rebate before making a purchase.

There ought to be a law …

"Everyone I know has horror stories about rebates," said California State Sen. Liz Figueroa, who introduced a bill in 2004 to establish guidelines for mail-in rebates. That bill, which would have given consumers 30 days to apply for a rebate after purchase and guaranteed payment 60 days after application, passed the California House and Senate, only to be shot down later that year by Gov. Arnold Schwarzenegger.

However, with growing bipartisan support for rebate reform and new advisers in the governor's office, Figueroa plans to reintroduce the bill.

"Republicans and Democrats," she says with a laugh, "we all agree on one thing: We hate rebates."

Other states have also begun tackling rebate issues on their own.

One of the first to take action was New York Attorney General Eliot Spitzer. Spitzer settled a case with cell-phone maker Samsung Electronics America in 2004 for failing to pay rebates. The company agreed to pay $200,000 to more than 4,100 consumers whose rebates were denied simply because they lived in apartment buildings. Samsung's rebate system only allowed one rebate per address and didn't have space to submit apartment numbers.

In Connecticut, state officials are now investigating several retailers that list only prices after rebate in their ads -- a practice that is illegal in the state.

Meanwhile, Massachusetts, in conjunction with 40 other states, is taking on a company that handles rebates. It has sued the nation's largest rebate fulfillment company, Minnesota-based Young America Corp., demanding that it submit to an audit of the uncashed rebate checks it has kept in recent years -- money known in the industry as "slippage" -- in exchange for charging its clients lower processing fees.

Who keeps the uncashed checks?

According to SEC filings, Young America kept $42.9 million in uncashed rebates between 1995 and 2002. Massachusetts Treasurer Tim Cahill believes the company has held onto $129 million worth of uncashed checks.

Cahill believes this practice has provided incentive for Young America to cheat consumers. This money should be turned over to the states' abandoned property divisions so that consumers can claim it, he says.

"There is an appearance of deception here," Cahill said. "We want to shine some sunlight on this practice. It sends a message to other firms. They are holding onto other people's money that doesn't belong to them."

Cahill says he is also "concerned" by some of the confusing forms used to deny consumers their money.

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