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August 11, 2005

Good morning. Mr. Chairman, members of the Committee, my name is Vivian Benz Peikin. I am an attorney employed by the law firm of Kimmel and Silverman. You may recall that Craig Kimmel, co-partner of the firm, has appeared before you to discuss the Computer Lemon Law and the Automobile Lemon law. I thank you for the opportunity to appear before the body to discuss the Computer Lemon Law.

Our practice is devoted to consumer protection, predominantly lemon law and breach of warranty claims with regard to automobiles, motorcycles, motor homes, boats and computers. Because the firm has office across five states, two in Pa, one each in NJ, Delaware, Maryland and Mass, it is our hope to offer the panel a practical perspective of computer problems and reasons why there problems can be addressed by passage of the proposed Computer Lemon Law, HB 684.

The need for HB 684 cannot be overstated. You have all heard that before, but consider how vital the role of computers is in all of our daily lives. We use computers for communication, information via the internet, email, data and word processing, photo archive and even more important, financial uses for banking, investment and household accounting. Our children use them for homework. We store so much information on our computers that they can be characterized as the window to our world, and, in some cases, a world of its own. Without computers, we cannot conduct our daily affairs without great inconvenience.

How many of us can honestly say that we function as well without our computer. What if we were without our computer and all that it holds, for 30 days and with knowing WHEN if was to be returned and in what state? What if the problems caused the computer to substantially malfunction without a resolution under warranty? What if we lost all our information in the process of repair? What if to get our computer repaired, the manufacturer required us to supply a credit card number for billing of repairs that SHOULD be covered under warranty?

Is that fair, honorable or right? Is it fair to be provided with an 800 number or a 900 number where the wait is long and untenable due to the voice mail trees transferring calls for assistance from one representative to another endlessly? To what can a consumer resort? Where are the teeth in the warranty?

These are the dilemmas faced by consumers, Pennsylvania consumers.

I believe that HB684 meets the needs of the consumer because it will cut through current warranty quagmires and set standards for all to be aware of before delivery of the computer.

A large contingent of computer manufacturers has adopted the view that the more-broad Federal and state consumer warranty laws simply do not apply to them. Identifying these companies is not easy for the consumer until after the sale when problems arise. This was the dilemma faced by automobile car buyer before the Automobile Lemon Law was passed.

HB 2284 proposes to clearly state a reasonable period of time when a computer must function and tailors standards for repairs. It mandates timely, fair and equitable repairs and if not effective, requires a refund or replacement at the option of the consumer.

What we now call the Pennsylvania Automobile Lemon Law was born from the same rationale. The greater demands of software file size, processor speeds, data communication and energy requirements, and new technology all require consumers to replace computers every few years or less, to keep up. This, despite the high cost of purchasing a new computer. The built-in obsolescence renders computers effectively worthless after as little as three years, which makes this legislation at least as deserving of passage as our Automobile Lemon Law, because the shelf life of a computer is so much shorter. A consumer should be entitled to expect the computer to function for a reasonable time - at least until the end of the warranty!

Computer warranties promise in writing to provide defect-free operation and free repairs if problems arise; yet consumers rarely see the process work as smoothly as it is supposed to. Industry practices often frustrate those seeking help and are unsuccessful. There simply is no accountability to compel good faith performance of warranty service. In my experience with several companies, nothing short of the filing of a lawsuit for breach of warranty gets a response and often it is uneven, unpredictable, and maddening when read in light of the warranty. A common response to litigation is that the computer is now worth only a few dollars.

Complaints among purchasers fall into five general categories: (1) inability to obtain timely and successful warranty repairs, (2) frustration in communicating with the manufacturer; (3) extended “down time” of weeks and months when repairs are needed; (4) perceived inability to hold the manufacturer accountable; and (5) frustration at being unable to secure a timely resolution to the concern.

In response to these, House Bill 684 specifies that the purchaser shall be provided with written notice at the time of sale, of his or her rights under the Computer Lemon Law as a reference source, to secure repairs during the coverage period of two years from the date of purchase. The bill demands that the purchaser be provided with a written statement of the purchaser’s rights established by the act in BOLDFACE TYPE. The manufacturer must secure a signed acknowledgement of these rights from the purchaser or the time limits relating to coverage and coverage period are tolled.

I have personally litigated or settled more than 100 computer cases. One of the obstacles to making a manufacturer take responsibility for a defective product or ineffective repairs is the interaction between software and hardware. Despite the fact the software is preinstalled on the computer, the manufacturer often blames the software and disclaims responsibility for repair.

B 684 has created a unique and satisfactory solution by requiring the manufacturer to conspicuously disclose the name and version number of all software programs or combinations of programs that will or may likely cause operating problems with the device. I am heartily in favor of this solution to a particularly frustrating problem.

The Bill also provides for timely and effective warranty repairs by the manufacturer within 5 days of notice of a problem and three days for mailing. The cost is to be borne by the manufacturer. Many manufacturer’s warranties advertise that repairs are provided onsite, and yet, according to the hundreds of frustrated computer owners with whom I have spoken, the circumstances of their particular problem never seems to meet the set of circumstances required for an on-site repair. HB 684 requires onsite service if provided for in the warranty. . Finally, HB 684 provides for the situation in which many consumers find themselves. The manufacturer will suggest that the consumer can attempt repairs at home with the assistance of the technician on the phone or with emailed instructions thereby saving time out of service. HB 684 requires that this onsite service conducted by the consumer himself is considered a repair attempt.

I have often spent time in certain stores having large sales volume in computers. I listen to the sales pitches of the staff. Promises are made that the computer has onsite service, 24/7-telephone service, and overnight repair. If that was the case, we would not need this legislation. The computer manufacturers who do honor their warranties would not be concerned about this bill. It will just make the others live up to a higher standard.

HB 684 provides that repairs must be long lasting not just shots in the dark by requiring a 2-year guarantee by the manufacturer. With passage of this section of the bill, consumers should be assured at least a good faith attempt at repair and resolution.

If not effective after two repair attempts for any one concern, or one repair attempt for any two concerns, the computer device must be repurchased or replaced at no cost and at the purchaser’s option.

By specifying the time within which repairs must be made and the location and terms under which the manufacturer must make such repairs, the Bill leaves no opportunity for the manufacturer to displace the consumer and his or her complaints by utilization of ineffective customer service procedures currently in use.

The Bill further provides for mandatory penalties of $6,000 if the manufacturer unsuccessfully defends a claim in Court, discouraging the manufacturer from defending meritorious claims.

In my experience, the first victim of cost cutting is customer service, as it generates little or no money for the company; it being an after-the-sale expenditure. One example of this is through the implementation of complex warranty policies ("hoops") that make warranty service an undesirable experience for consumers. It is quite common in the industry for example, to require the consumer to first call a phone number (occasionally at an extra cost), wait an inordinate amount of time, then speak to a series of uninformed and less-than-helpful personnel, forcing the consumer to engage in self-help to fix the problem. Industry practices now require consumers to obtain an authorization number to send their computers in for repairs, at the customer’s cost of shipping, and provide a credit card number. Without both items, no repairs are performed. The manufacturer then unilaterally determines whether repairs will be honored under warranty and if not, repairs the unit and charges the credit card. Imagine if the Automobile industry worked this way how outraged we all would be. It is no less an unfair practice for the computer industry to engage in such practices when the consumer holding a valid warranty is at the mercy of some anonymous technician located somewhere across the country when he needs his computer repaired.

These practices derive from many causes, and often can originate from inevitable product defects and glitches in new technology, supplier problems and quality control, regardless of how well the manufacturer tries to put out a good product. But the point is that the warranty always promises a defect-free computer, and these problems of industry must be born by the manufacturers, not the consumers who purchase the product in good faith and are entitled to cost-free warranty repairs.

Few in the industry would dispute, and many would loudly agree, that reliability and warranty service among companies varies considerably, ranging from excellent, to very poor. Unfortunately, it is becoming apparent that that the incidence of poor customer service in light of competitive and corporate realities, is becoming more and more problematic and will not go away on its own. When reliability issues are accounted for, there is a need for minimum standards of performance.

While benefiting consumers is its first aim, HB 684 is effective in another way: it levels the playing field within the industry between all manufacturers, by ensuring the same level of warranty service for all citizens of the Commonwealth regardless of brand purchased.

How does this help the industry? We must be reminded that manufacturers selling to the consumer market all compete for the same dollars. The demands of stockholders for dividends and return on investment are ever-present, the stating of profits and revenues are under greater scrutiny and market forces more now than ever, encourage cost cutting. Companies that do not currently have adequate warranty services will, by the provisions of HB 684, change their practices to comply, while those that devote substantial funding to quality service, such as Toshiba, to name one, will not be at a competitive disadvantage by dealing with customer issues with greater care. Put another way, there will be no profit motive to companies cutting corners with customer service, as the law will ensure that such practices will result in consumers obtaining refunds for not performed in accordance with the new provisions of law. The industry as a whole benefits from this fairness in support of customers because all will have to meet the same standards.

While there is no shortage of money for manufacturers to have better warranty practices and meet or exceed the standards of HB 684, there is no profit in it either and that, in and of itself, explains much of the problem.

Twenty years ago, when the industry was in its infancy, only a few of the dominant manufacturers of today even existed. Theirs is a history of explosive sales and revenue, while customer service and warranty obligations were regarded as afterthoughts. I am sure industry representatives would disagree, but the evidence is clear.

What HB 684 aims to accomplish is a minimum expectation of computer performance, a reasonable 24 months. This is less than the 3 years found in warranties most manufacturers include with their products and/or offer at extra cost, but which often fail in practice, to meet the standards provided in writing.

HB 684 brings the industry into line with all other manufacturers of consumer products sold with a warranty. While Federal law does this through the Magnuson-Moss Warranty Improvement Act of the 1970s, HB 684 addresses issues particular to computer products. The law would police the prevailing practices of warrantors, advise consumers of their rights at the time of sale, and give steps to follow in the event of problems. Notice and fairness to both sides is the hallmark of this legislation.

Over the last six years, Mr. Kimmel, co-founder of the law firm at which I am an associate, has devoted a substantial amount of time to understanding computer industry practices and problems as they relate to consumers. Mr. Kimmel testified in support of earlier proposals in 1999, He has also been active in promoting this type of updated consumer protection. Mr. Kimmel worked informally with the Connecticut and Illinois legislatures at their request. He has been interviewed by national media outlets, television and print, in Pennsylvania, California, Illinois, Connecticut, New York and New Jersey, calling attention to this subject. While Mr. Kimmel has been out front, I have litigated and settled numerous computer cases and spoken to hundreds of frustrated and angry computer purchasers from moms who are upset because their child’s homework or report is stuck in the computer to small business owner’s who cannot retrieve their documents and other information to grand moms who just want to email their grandkids. Over these last 6 years, there has been no improvement in how the industry has met consumer complaints and warranty services. The need for this legislation remains strong.

HB 684 contains in sum, a series of protections substantially the same as those our legislature enacted in 1983 involving Automobiles. In the time since, nobody has questioned the validity or effectiveness of the Automobile Lemon Law in assuring the rights of Pennsylvanians, nor can they be. The time and circumstances were right for that consumer protection back in 1983 and Pennsylvania was a pioneer then. So too must we step forward today and pass a fair, proactive and reasonable series of measures to protect Pennsylvanians from prevalent computer warranty abuses. I thank you for the opportunity to speak with you and am willing to entertain any questions you may have.

Vivian Benz Peikin