State Supreme Court Justice Joseph C. Teresi decided that Dell and Dell Financial Services engaged in fraud, false advertising, deceptive business practices, and abusive debt collection practices, said the N.Y. State Attorney General's Office, which filed the lawsuit in May 2007. DFS is a joint venture between Dell and CIT Bank.
In his ruling, Teresi barred Dell and DFS from engaging in illegal business practices cited in the suit. The court will hold further hearings to determine restitution to consumers and the amount of profits Dell unlawfully earned that will be forfeited to the state.
N.Y. Attorney General Andrew M. Cuomo said that Dell's and DFS's actions were "a bait and switch that left thousands of people paying for essentially no service at all."
"We have won an important victory that will force Dell to live up to its responsibilities and pay back its customers for profits that were pocketed but not deserved," Cuomo said in a statement. "This decision sends an important message that all corporations will be held accountable for the promises they make to consumers."
In an e-mailed statement, Dell said it was undecided whether to appeal the decision. However, the company said that it was confident that when the proceedings were over, the court would determine that only a "relatively small number of customers" were affected.
"We don't agree with this decision and will be defending our position vigorously," Dell said. "Our goal has been, and continues to be, to provide the best customer experience possible."
In his decision, Teresi found that Dell lured customers into buying computers based on ads for no-interest or no-payment financing. In practice, however, the vast majority of the buyers were denied the attractive financing options and were offered high-interest loans that often exceeded 20% instead.
In addition, the judge found that DFS incorrectly billed consumers on cancelled orders, returned merchandise, or accounts they did not authorize Dell to open, and then harassed the customers with illegal billing and collection activity.
Besides the illegal financing activity, Teresi ruled that Dell deprived consumers of technical support to which they were entitled under warranty or service contracts by failing to provide timely on-site repair. In addition, the company discouraged customers from seeking technical support by telephone through long wait times, repeated transfers, and frequent disconnections. The company also failed to provide rebates as promised, the judge found.
Since the return of company founder Michael Dell as chief executive in January 2007, the company has been rebuilding in an attempt to regain its one-time position as the world's largest PC maker. Over the last few years, Dell has lost market share to Hewlett-Packard, which displaced Dell in the top slot. Poor customer service contributed to Dell's loss of market share, experts have suggested.