The New York attorney general has filed a lawsuit charging that Dell used fraud and false advertising to increase profits on PC sales.

The lawsuit alleges that Dell misled its customers by applying high credit rates to their computer purchases although it had promised cheap financing. The suit also alleges that Dell failed to deliver rebates, warranties, and technical support as simply as it had promised, according to the lawsuit filed Tuesday in Albany County Supreme Court by New York state Attorney General Andrew Cuomo.

"Consumers who purchase Dell's products often find that many of the benefits and inducements featured in Dell's advertisements are illusory," the lawsuit said about Dell and its business unit DFS (Dell Financial Services). "Although Dell often heavily advertises the availability of 'no interest' financing, in reality, DFS uses ultra-restrictive underwriting guidelines, under which the vast majority of consumers -- even those with excellent credit histories -- do not qualify for promotional financing."

Under that plan, DFS signs customers up for no-interest loans, then switches most of them to accounts with interest rates exceeding 20 percent without notifying them of the change, the lawsuit said. DFS also charged some customers for orders that were canceled or never delivered.

"In many cases, DFS has harmed these consumers' credit ratings by incorrectly reporting their account as delinquent to the credit reporting agencies after they refuse to make payment on a nonexistent debt," the lawsuit said.

Dell denies the charges and plans to fight the suit, according to a statement from spokesman Bob Kaufman.

"Dell will vigorously defend itself in court," Kaufman said. "We are confident that our practices will be found to be fair and appropriate. While even one dissatisfied customer is too many, the allegations in the AG's filing are based upon a small fraction of Dell's consumer transactions in New York."

The charges strike directly at the improved marketing image Dell has tried to build in recent months. After several quarters of disappointing sales in 2006, Dell promised to rebuild itself by investing $100 million to improve customer service and by eliminating its complex rebate system in favor of more predictable prices.

Dell also fell behind rival Hewlett-Packard in market share last year, dismissed its CEO in January, and struggled with a financial investigation by the U.S. Securities and Exchange Commission (SEC). The company has missed the deadlines for filing its last two quarterly earnings reports, and admitted in March that its own internal investigators had found evidence of accounting misconduct.

Now the New York lawsuit charges that Dell also acted with misconduct in its customer relations, forcing customers with computer problems to navigate "a nightmarish array of obstacles in their quest for service."

"At Dell, customer service means no service at all," Cuomo said in a statement posted on a Web site dedicated to the lawsuit. "Dell's consumers were intentionally misled, and they had to pay for that privilege."

That left some customers with inoperable computer equipment for a span of weeks or months because their calls to Dell tech-support lines resulted in being left on hold, shuttled between departments, disconnected after spending hours on the phone, and finally rebuffed when they request a promised "on site" repair, the lawsuit said.

Cuomo asked the court to force Dell to pay damages to customers, create new standards to ensure it doesn't repeat its behavior, pay a civil penalty of $500 for each violation, reimburse New York state for its court costs, and return the profits it earned through its practices.

This story was updated on May 16, 2007.