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DirectBuy settles class-action lawsuit

Disgruntled members claim they did not benefit from manufacturer discounts passed on to the buying club.

By Karen Datko Feb 3, 2011 5:39PM

This post comes from James R. Hood at partner site ConsumerAffairs.com.

 

The DirectBuy buying club chain has reached a preliminary settlement of a class-action lawsuit that claimed the club's members were wrongfully excluded from promotional payments allegedly made by manufacturers of products sold by the clubs.

Meanwhile, West Virginia Attorney General Darrell McGraw has sued DirectBuy, alleging it uses coercion, deception and high-pressure sales tactics to sell memberships that cost $3,995 or more.

 

The class action (.pdf file) says members of the 145 franchised DirectBuy centers pay thousands of dollars to join and are promised that they will be able to buy furniture, appliances, carpeting and other products at the "direct" price -- the price actually charged by the manufacturer or supplier, thus avoiding the usual retail markup.

 

But the lawsuit alleges that DirectBuy's promises are "false and misleading" because the company does not report financial incentives from manufacturers -- volume rebates, cooperative advertising funds and early payment discounts. The plaintiffs alleged that, therefore, they were paying more than the "direct" price they had been promised.

 

$8 million

In support of the plaintiffs' claims, the lawsuit says that during the fiscal year ending July 31, 2007, DirectBuy and its affiliates received about $8 million in those types of payments. During the same time, it generated income of about $87 million, including $77 million from the sale of memberships and about $2 million from the financing of memberships.

 

DirectBuy denied that it had broken any laws or misrepresented its service and said it agreed to the settlement only to avoid the cost of litigation.

 

The settlement applies to anyone who was a DirectBuy member during time periods specified in the lawsuit. Those who are still members will receive a 28-month DirectBuy membership renewal for the price of 24 months, or a 13-month renewal for the price of 12.

 

Former members will be eligible for a two-month free membership at their most recent membership level.

 

What to do

Court documents indicate that more details of the settlement will be made available at www.settlement.direct.com, although the link was not operating at the time of this writing.

 

The preliminary settlement was reached before U.S. Magistrate William I. Garfinkel of Connecticut. It remains subject to final approval by the court.

 

More from ConsumerAffairs.com and MSN Money:

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