Home Depot Is Sued Over Credit Card Promotion

Home Depot Inc., the world’s largest chain of home-improvement stores, was sued by customers who claimed the firm’s interest-free, deferred-payment credit promotions were deceptive.

A lawsuit filed last week in federal court in Baltimore and similar suits filed in San Diego and Seattle in November accuse the firm of engaging in a “pattern of racketeering activity” including mail and wire fraud. The consumers claim payments made to reduce high-interest credit balances were instead applied to the interest-free balances.

“Home Depot defrauded consumers through their mishandling and misapplication of their payments,” said lawyer Roy Katriel, who represents consumer Joseph King in the Maryland lawsuit, which seeks to represent a class of tens of thousands of Home Depot customers. “They deprived our client of the true value of the no-payment, no-interest promotion.”

Home Depot credit cards are big business for the firm, generating about 23% of fiscal 2002 sales, according to regulatory filings. In fiscal 2002, 3.3 million customers opened Home Depot credit accounts, bringing the total to 12 million.

Home Depot spokesman Jerry Shields declined to comment, referring questions to Citigroup Inc.’s Citibank, which took over last year from General Electric Co.’s Monogram Bank as the card issuer.

A Citibank spokeswoman said the bank has changed how payments were applied since taking over the account from Monogram. “We apply the payment to the promotional balance last,” Maria Mendler said.

Home Depot attracts customers with promotions that offer no interest and deferred payments on large purchases using a store-branded credit card. For example, credit purchases exceeding $299 may require no payment and accrue no interest as long as the balance is paid off before the promotion ends.

Subsequent smaller purchases made with the same card do accrue interest and require monthly payments. The lawsuits say that when customers made their monthly payments to reduce high-interest revolving balances, the money was instead applied to the interest-free balances. Interest on the balances not covered by the promotions was as high as 21%.

The lawsuits contend that this practice was never properly disclosed to customers.

A spokeswoman for Consumer Action, a nonprofit consumer advocacy group, said the practice was unfair, though not illegal if disclosed.

Attorney Nick Styant-Brown, who filed the San Diego and Seattle suits, said the closest the Home Depot credit card agreements came to disclosing the practice was to reserve the right to “reapply the payment.”

“It doesn’t overcome our claim that it’s a deceptive practice,” he said.