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FTC slams DirecTV, alleges years of deception

Don't tell Rob Lowe, but the FTC says DirecTV deceived customers over contracts, prices that would change in the second year, and cancellation fees..

The Federal Trade Commission says DirecTV has misled customers since 2007 about contracts, early-termination fees, and prices that rise after a promotional price ended - the last a common complaint also about cable-TV companies. But the FTC announced a lawsuit today saying the satellite-TV company has repeatedly crossed the line into unlawful deception - an allegation DirecTV says it will fight:

The Federal Trade Commission has charged DIRECTV, the country's largest provider of satellite television services, with deceptively advertising a discounted 12-month programming package because it fails to clearly disclose that the package requires a two-year contract. In addition, DIRECTV does not clearly disclose that the cost of the package will increase by up to $45 more per month in the second year, and that early cancellation fees of up to $480 apply if consumers cancel the package before the end of the two-year period.

DIRECTV also fails to disclose that its offer of free premium channels for three months is in fact a negative option continuity plan that requires consumers to proactively cancel to avoid automatic charges on their credit or debit cards, the FTC alleges."DIRECTV misled consumers about the cost of its satellite television services and cancellation fees," said FTC Chairwoman Edith Ramirez. "DIRECTV sought to lock customers into longer and more expensive contracts and premium packages that were not adequately disclosed. It's a bedrock principle that the key terms of an offer to a consumer must be clear and conspicuous, not hidden in fine print."

In filing its complaint, the FTC is seeking a court order that permanently bars DIRECTV from engaging in the allegedly illegal conduct, as well as a monetary judgment that could be used to provide refunds to affected consumers.

DirecTV spokesman Robert Mercer says the company is fighting the FTC's charges. "The FTC's decision is flat-out wrong and we will vigorously defend ourselves, for as long as it takes," he said in an emailed statement. "We go above and beyond to ensure that every new customer receives all the information they need, multiple times, to make informed and intelligent decisions. For us to do anything less just doesn't make sense."

Among the FTC allegations against DirecTV, based in El Segundo, Calif.:

  1. DIRECTV promotes its television service and programming package prices "for 12 months," without clearly and prominently disclosing that these deals require consumers to sign a two-year contract (with a substantial early cancellation fee) and that the cost of the programming packages jumps $25 to $45 a month in the second year of the contract; and

  2. DIRECTV represents that consumers will receive premium channels, such as HBO and Showtime, "free for 3 months," without adequately disclosing that: 1) consumers will be enrolled in a negative option continuity plan that charges for the premium channels after the trial period; 2) consumers must contact DIRECTV to cancel the plan before the trial period ends to avoid incurring the charges; 3) DIRECTV will use consumers' credit or debit card information to charge them after the trial period ends; and 4) there are specific costs associated with the negative option continuity plan.

Why do pay-TV companies get into these kinds of messes? One reason is that, with such limited competition, the market rewards companies that can mislead customers into signing up. When consumers have few if any  alternatives, companies benefit by getting service started and then hoping most subscribers will grin and bear it through later price increases. The strategy undoubtedly works - unless they cross the line into deception.

"You can just imagine the TV ad: 'I'm Rob Lowe, and here's the price you'll pay for DirecTV. And I'm Hidden-in-the-Fine-Print Rob Lowe, and we're actually going to jack up your bill,' says Delara Derakhshani, policy counsel for Consumers Union.

Derakhshani says: "The price you see in the ad ought to be the price you pay, and if it's not, the company should be the one that gets penalized, not the customer. You deserve to know exactly what you're going to pay down the line before you get your first bill."

Customers of any company would agree.