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Sears reaches agreement with FTC

June 4, 1997

WASHINGTON (AP) _ The Federal Trade Commission struck a deal Wednesday with Sears, Roebuck & Co., ensuring that the company will refund at least $100 million to customers who were pressured to pay off Sears credit card debts even though they were protected by bankruptcy laws.

``Since 1985, Sears has undermined some very important consumer protections embedded in the American bankruptcy process,″ said Jodie Bernstein, director of the FTC’s consumer protection bureau. ``Sears induced consumers to pay debts they did not legally owe.″

News of the FTC’s decision to accept the proposed consent decree for public comment came one day before the nation’s second-largest retailer was expected to outline a deal with 39 state attorneys general to settle similar charges filed in federal bankruptcy court in Boston.

A Sears spokeswoman said the company would have no comment until after Thursday’s court filing. Sears said in a court brief Tuesday it has reached no settlement with the Justice Department.

Wednesday’s consent decree preserved the FTC’s right to take Sears to court in the event its refunds under the class-action settlement to be submitted Thursday total less than $100 million.

The FTC’s Bernstein said the consent decree was designed to ensure that Sears returned ``all of the financial gain it realized through these illegal collection efforts.″

Sears said Tuesday the class-action suit is likely to affect customers in all 50 states. The FTC said Wednesday’s settlement ``requires Sears to completely redress debtors, with interest, for payments wrongfully obtained.″

The retailer’s actions affected more than 200,000 customers, the FTC said.

Sears, based in the Chicago suburb of Hoffman Estates, has been trying for months to put the flap behind it after admitting its executives ``exercised flawed legal judgment″ in handling the debt collections.

Sears holds a secured interest in purchases made with its card, giving the company the right to reclaim purchased items when the buyer defaults on the credit card debt or tries to wipe it out by filing for bankruptcy.

But to reclaim property from a customer who is bankrupt, Sears was obligated to report repayment agreements to the bankruptcy court for approval.

``In many cases, Sears did not file the agreements, or the bankruptcy courts did not approve them,″ according to an FTC statement.

Sears told the Securities and Exchange Commission that its potential liability under the class-action lawsuit exceeds $400 million. Some industry analysts have estimated it would be close to $1 billion.

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