Retailers Leon's Furniture Ltd. and The Brick Ltd. are vowing to fight allegations from the federal Competition Bureau that they engage in deceptive marketing with their well-known "buy now, pay later" promotions.
The issue appears to be a key one for the discount furniture and appliance retailers, as according to one estimate, this kind of deal accounts for up to 50 per cent of the companies' transactions across Canada.
On Tuesday, the Competition Bureau filed a civil statement of claim in the Ontario Superior Court alleging that both Leon's, which acquired The Brick this year, and The Brick use "false and misleading" ad pitches promising customers they can put no money down for up to 21 months. The bureau alleges that its investigation shows that the companies use fine print to charge consumers hundreds of dollars in upfront fees.
None of the allegations has been proved in court.
In a news release, Leon's said the companies deny the allegations and will "vigorously defend" their positions in court.
"The deferred payment plans offered by Leon's and The Brick benefit consumers," the statement reads. "… As the matter is before the court, Leon's and The Brick will not comment further at this time."
In a research note for investors, Stephen MacLeod of BMO Nesbitt Burns Inc. warned on Wednesday that the impact of the allegations was "potentially negative," but he cautioned that it could be years before a final outcome. His note says BMO estimates that this kind of deferred payment accounts for up to half of all purchases at the two retailers and their affiliated stores.
In its court filing, the bureau alleges that the company requires customers seeking to take advantage of its deferred payment deals to first pay various "administrative," "processing" or "membership" fees. For example, the bureau alleges that a customer wanting to buy a $1,500 sofa with no money down could end up paying more than $350 up front, and more in the end for the sofa.
The allegations carry the possibility of a maximum $10-million fine for each company. The bureau is also demanding that the retailers, which have 300 stores across the country, stop the practice and reimburse "current and former customers" the extra money it alleges they paid.
In its filing, the bureau listed several "aggravating factors," saying it had warned both companies about their practices. It said it warned The Brick about "the seriousness of deceptive marketing practices" in 2009, when the company agreed to pay back certain customers over a promotion, and in 2010, when it agreed to "correct its mislabelling of Bamboo products."
The bureau also said the companies had changed their marketing in Quebec after facing class-action lawsuits from consumers there, which were settled.