Judge Fines Overstock.com $6.8 Million, Rules It Needs a 'Price Coach'

Sam Antar's blog is out this weekend with an item describing how a California judge has slammed Overstock.com with a $6.8 million penalty for consumer fraud.

Ruling on a lawsuit brought by a consortium of California district attorneys, the suit contends that Overstock used phony price comparisons in claiming that it offered customers a bargain.

What's interesting about this case, I think, is how Overstock worked overtime to head off the bad news. In a TV commercial (see below) featuring Mike Ditka, the "price coach," the company claimed that it "price checked over 500,000 products a week" to make sure customers got the best prices.

But Judge Wynne S. Carvill, a Superior Court judge in Alameda County, didn't buy that malarkey. He ruled that Overstock systematically overstated the amount of savings customers could get by buying at Overstock.

To make matters worse for the company, it not only has to pay the fine, but is likely to be assessed attorneys fees and investigative costs, which could run into the millions, and it will be subject to an injunction requiring Overstock to provide proper price comparisons.

That's a real "price coach," not an actor playing one.

The irony is that customers don't need a price coach to find out if they're getting a good deal at Overstock. All they need is Google or a free browser add-on called Priceblink, which automatically compares prices at a variety of online vendors.

Anyway, it's not over for Overstock. I'm sure the company will appeal, throwing more good money after bad. Sam reported that last quarter "the company reported a $2 million increase in legal fees resulting in large part from the 'defense of a case brought by district attorneys in eight California counties.'" That's dumb, I guess, but not as dumb as the consumers who actually buy there expecting the best deal.

Just today I was looking for a cheap corded phone. At Amazon.com an AT&T 210 corded phone costs $9.34. At Overstock the price is $13.59. OK, that stinks, $4 more than Amazon. That's bad, but what's worse is this:  

Save $12.23 (47%) Compare $25.82

 Yep, that's what it says. $25.82-- $7 above the list price, which, as the Amazon listing points out, is $18.79.

 When you click on "compare" you get the following gobbledygook:

What is "Compare"?
The term "Compare" means the price at which, in the reasonable judgment of our experienced buyers, manufacturers or suppliers, the item may be sold in the U.S. on an everyday basis. Other vendors sometimes refer to this as the "retail price" exclusive of special promotions or sale prices, at which the item might be offered at retail stores and at customary retail mark-up. In many instances, though not all, the "Compare" prices reflects a price suggested by the manufacturer or supplier of these goods, without reference to actual retail sales and may amount to an estimation of a retail offer price in accordance with standard industry practices. It may also include a reasonable average estimated shipping cost, if ordinary shipping costs have been discounted or eliminated.

We make no representation that the products have been sold or offered at the "Compare" price, and the price may or may not reflect the average or prevailing market price in any area on any particular day. For some items listed as a set, the "Compare" price may be an aggregate of the suggested or estimated prices for all items included in the set. Actual retail sales in your area may substantially differ from the "Compare" price. Moreover, the nature of internet sales on a national or international basis, and the fact that we deal in overstocks, closeouts, end-of-season, and unique items that may be sold only on Overstock.com, precludes our ability to know whether our products are sold at the "Compare" price at any particular location or time by other vendors.

You may choose to use the "Compare" price as an approximate guide to what you would or could pay for these items in other locations, at other times, or under other conditions, including full retail price.

Translation: "ain't nobody selling it for $25.82." A Priceblink price search bears that out.

When Overstock says "the nature of internet sales on a national or international basis, and the fact that we deal in overstocks, closeouts, end-of-season, and unique items that may be sold only on Overstock.com, precludes our ability to know whether our products are sold at the 'Compare' price at any particular location or time by other vendors..."--that's just sheer ca-ca. A quick Internet search, with or without Priceblink, shows quickly that the "compare at" price is as phony as a $3 bill.

Yep, Overstock customers sure could use a "price coach," though I don't think there's much the "coach" would say except, "shop somewhere else." 


© 2014 Gary Weiss. All rights reserved.
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California Sues Overstock.com on Pricing Scam

In my Street.com column a couple of weeks ago I described one of the ways companies conceal bad news -- by burying it in the "risk factors" section of their SEC disclosures. I cited as an example my favorite corporate crime petri dish, Overstock.com. For the past two years, Overstock has buried news that its pricing practices were under investigation by California criminal authorities.

Yesterday, the district attorneys of now seven California counties sued Overstock for $15 million, claiming fraudulent pricing practices. The counties had offered to settle with Overstock for as little as $7.5 million, but Overstock refused. No wonder: if the company had coughed up such a substantial amount of cash, it probably would have been driven into bankruptcy.

The allegations in California allege one of the oldest consumer scams in the books:

"Beginning no later than January 1, 2006, Overstock routinely and systematically made untrue and misleading comparative advertising claims about the prices of its products," the civil complaint states. "Overstock used various misleading measures to inflate the comparative prices, and thus artificially increase the discounts it claimed to be offering consumers."

Here is the lawsuit:

California AGs vs. Overstock

The company's general counsel "denied the allegations in the complaint and said the district attorneys failed to understand how Overstock advertised its prices." No, actually it seems to me that the DAs understood how Overstock advertised its prices.

Seems that an outraged consumer's complaint led to the charges against Overstock:

In 2007, Mark Ecenbarger bought a patio set for $449 on Overstock. The website claimed the list price other companies were charging for the set was $999.99.

But when the furniture was delivered, there was a Walmart sticker on the side of the box showing the set was really worth $247.

The reaction of the market to this news, which emerged after the markets closed last night, is intriguing. The stock is actually up substantially. The reason for that is simple: fraud is already incorporated into the share price. This company is under SEC investigation for systematically cooking its books. Why should consumers be treated any differently than shareholders?

Overstock is pretty shameless in its fraudulent pricing. As noted in the lawsuit, BusinessWeek surveyed its pricing practices back in 2004 and found that it systematically overstated "list" prices. For example,"of the 92 Toshiba and Panasonic products available Mar. 2, 40 had list prices higher than the manufacturers' list."

Just for the heck of it I checked out Overstock's price for the paperback edition of Andrew Sorkin's Too Big to Fail. The price at Overstock is $11.06 and the search page for the book fraudulently says "compare at $20.55" and "you save 46%."



Baloney. The biggest online retailer, Amazon, lists the book at $9.90 and gives the list price as $18.00, not "$20.55." Barnes & Noble also prices the book at $9.90, and gives the correct list price.

So where did Overstock conjure up that "compare at" price? The Future Felons of America outlet shop in Salt Lake City? Misstating an easily determined (you look at the book cover or website) publisher's list price takes a degree of unmitigated gall, and contempt for the law, found only at Overstock.com.

Seems that Overstock has as much contempt for its customers as it does for its long-suffering shareholders.

UPDATE: Predictably, the two statewide Utah newspapers, the Salt Lake Tribune and Deseret News, always happy to run trivia like this, published not a word on the lawsuits.

But numerous other media outlets have picked up on the story including an ABC affiliate in California. Hey, you can't buy publicity like that, especially at the beginning of the holiday season.

© 2010 Gary Weiss. All rights reserved.

It's Official: The New Credit Card Rules Suck Wind

Back in August I wrote an article for Parade on the perils of credit cards, and I looked ahead to legislation that was moving ahead to enactment, as well as a Federal Reserve rulemaking.

Well, all that has come to pass and it's official: consumers are as prone to abuse by credit card companies, most of them beneficiaries of TARP largesse, as ever before.

Gretchen Morgenson's column in the New York Times today describes how banks are figuring out new ways of rooking customers, and regulators are doing nothing about it. One back is charging for statements, which

certainly seems to flout the spirit of both the Fed’s regulations and the Credit Card Accountability Responsibility and Disclosure Act of 2009. But because it is labeled a statement fee, it does not appear to violate the letter of the law, which barred credit card issuers from levying separate fees when a consumer submitted a payment, whether “by mail, electronic transfer, telephone authorization, or other means, unless such payment involves an expedited service by a service representative of the creditor.”

The Washington Post points out that the new rules don't cover rebate cards.

Expiration dates on those cards typically range from two weeks to three months, said Brian Riley, an analyst with the research firm Tower Group. In addition, the programs are often designed to discourage consumers from redeeming the offer, he said. Riley estimated about 20 percent of $4 billion in annual rebate offers are left on the table.

Here's a laundry list (PDF file) of other methods card issuers have used to circumvent the new credit card rules, compiled by a confederation of consumer groups.

There's a lot that Congress and the Fed are totally neglecting, such as unfair collection methods that include sewer service. I'm glad that the media is focusing on the deficiencies of the credit card legislation, but there needs to be more coverage of the general sleaze involved, and the need to rebuild consumer protection laws.

© 2010 Gary Weiss. All rights reserved.