On Oct. 13, 2009, the office of the attorney general in the state of Washington sent a letter to more than 30 home improvement companies in the state. The letter, delivered by certified mail, went out under the signature of Jack G. Zurlini Jr., the assistant attorney general in the consumer protection division. (Read an interview with Zurlini.) The subject line read: "Notice of Unlawful Marketing and Sales Practices in Home Remodeling Industry." It warned companies that the attorney general's office was "investigating the marketing and sales practices" of several companies in the home remodeling business and that "our primary mission is to foster a marketplace free of unfair and deceptive acts and practices."
Those acts included but were not limited to:
- Misrepresenting discounts, which is to say deceiving consumers "by making up bogus justifications for taking steep discounts on their artificially inflated prices." These "bogus justifications," the letter claims, include discounts for everything from yard signs to a "manufacturer's rebate or discount program that in reality does not exist." Companies would start at a certain price and proceed to drop that price through a series of discounts. The attorney general calls that deceptive and illegal since the companies never intended to sell for the originally stated price.
- Misrepresenting sales presentations, that is, setting leads by "misrepresenting what the appointment is about or how long it will last." The example stated that companies offer to send a technician to the home for what homeowners believe will be an energy audit but which actually turns out to be a sales call. In other cases, sales reps would remain in the house for as long as it took to obtain a signature.
- High-pressure sales tactics. According to the state attorney general, such tactics include "creating a false sense of urgency or an unfounded fear of losing out in consumers by misrepresenting the scarcity of an object." It essentially puts a time frame around a discount in an attempt to prompt a yes or no from homeowners.
Other practices cited as unlawful include marketing and selling claims of "specific energy cost savings" without "supporting competent and reliable scientific evidence," failure to "clearly and conspicuously disclose" limitations on offers, guarantees, costs, or pricing; failure to provide proper notice of cancellation rights; claims that companies installed the job using employees when they in fact used subcontracted labor; and engaging in harassment by "making repeated telephone calls, sending multiple e-mails, repeatedly canvassing homes."
The assistant attorney general closed with the warning that "our investigation of the home remodeling and window replacement industries operating in Washington State is continuing."
On the Radar
Prior to issuing its letter, the attorney general's office had already filed a civil complaint against one company, and that company, Evans Glass, through its attorneys, had signed a consent decree, effectively agreeing to comply. The decree concluded with a "prayer for relief" that assessed the company civil penalties, required Evans Glass to pay the investigative costs, and called on the company to provide for restitution "to consumers of money or property acquired by the defendant as a result of the unlawful conduct complained of herein."
At the time of the filing, Evans Glass, in Seattle, was one of the largest window replacement companies in the state, with 2009 sales topping $30 million and a salesforce of 75 to 90 representatives. As of last month, the company was out of business. In the last five years Evans Glass grew so fast ? from $6 million to $20 million "almost overnight," according to former division manager Tim McFarlane ? that "at one point we couldn't fit everyone in the building prior to a meeting." That growth was driven by a highly effective canvassing program, one soon emulated by area competitors. Canvassing at its peak provided 60% of leads.
Evans Glass general manager Matt Flath says that his company came to the attorney general's attention by way of complaints filed against it with the Seattle?based Better Business Bureau (BBB) of Western Washington, Oregon, and Alaska. Evans Glass had had an ongoing dispute about its BBB rating until the two organizations parted ways in February 2009. Zurlini says that, in addition, his office had received complaints on its own consumer protection website and had obtained additional information from review sites such as Angie's List, Judy's Book, and Ripoff Report.
Once it had informed Evans Glass that the company was under investigation, the attorney general's office was able to use its investigative powers of subpoena to requisition not only BBB records but to secure from Evans Glass the names of past and current customers as well as the names and contact information of former employees. Many of these, as well as the company's officers and its sales and marketing personnel, were interviewed, some under oath, by the attorney general's office, which requested copies of the company's training manuals and the scripts its marketers used. The attorney general also made use of secret shoppers. General manager Flath says the knowledge that a sales appointment might, in fact, consist of a state employee engaged in fact-finding "scared my sales reps to death." Many quit.
A Pattern Set
The civil complaint filed against Evans Glass on Sept. 16, 2009, details 15 pages of accusations, ranging from deceitful (read: big-drop) discounting to use of forged letters and documents in its pitch book to "misrepresentations about mold health risks." Among the accusations was that Evans Glass had misrepresented itself as being in good standing with the Better Business Bureau when, in fact, "Evans' BBB accreditation was in jeopardy for the past few years due to the volume of complaints the BBB received against it and Evans' failure to timely resolve them," according to the complaint. The attorney general's office says that consumers filed 21 BBB complaints in 2006, 34 in 2007, and 56 during the first three months of 2008. McFarlane points out that such complaints were a fraction of the 3,000-plus jobs the company was installing annually and that Evans Glass endeavored to resolve them.
Its major error, and the reason the company got dropped, he says, was "the technicality" of not reporting those resolution efforts to the BBB, which reduced Evans Glass' rating from a B+ to an F. McFarlane also says that the company conducted its own customer satisfaction survey with 98% of the customers it was able to contact "satisfied enough that they would recommend us to their friends."
In the consent decree, Evans Glass agreed to pay the attorney general's costs and fees ? $62,500 ? and a civil penalty of $25,000. This was in addition to paying for its own legal costs, which Flath estimates at $100,000. The $25,000 penalty was suspended provided Evans Glass complied point by point with the items in the complaint. The company changed its website, its commission structure, its marketing message, and its sales tactics. But compliance proved complicated and disruptive, and the damage was done.
"Home improvement selling is a cut-throat business," Flath says. "And if you're the first one [charged], all the other companies will go into the house with your press release and show that to everybody." Which is, he says, exactly what happened. Rivals waved the attorney general's press release at homeowners, citing it as a reason not to do business with Evans Glass. According to Flath, leads fell away and appointments were cancelled. Cancellations of signed jobs rose from 9% to 47%. "I would lose probably 8% to 10% of my sales staff every six weeks because of the lack of leads," McFarlane says. In addition, Flath says, the attorney general's office contacted past customers inquiring about the company's pricing and practices with the result that homeowners complained to the window company that they were being badgered. Partial sales ? representing significant potential future business ? also began to disappear.