Sears Poised To Settle Credit Fiasco Lawsuits

Sears, Roebuck & Co. has reached a preliminary agreement to settle lawsuits incurred after it pressured bankrupt customers to pay off their Sears credit cards even though their debts had been wiped out, the company said Tuesday.

The nation’s second-largest retailer said in court papers that an “agreement in principle” is being presented to 39 state attorneys general. It covers “a broad range of issues, including compensation to debtors as well as penalties and additional injunctive relief.”

Sears spokeswoman Jan Drummond declined to comment on the scope of the settlement but said it would, if approved, likely include customers in all 50 states.

The company also has drafted a consent decree with the Federal Trade Commission, but is still negotiating a settlement with the U.S. Department of Justice, it said in the status report filed in U.S. Bankruptcy Court in Boston.

Details of the agreement were to be presented Thursday to Judge Carol Kenner, who is hearing the class-action lawsuit against Sears.

Attorneys general from at least 27 states last month signaled an interest in investigating whether many of the nation’s largest retailers had unfairly pressured bankrupt debtors, who have sued Sears, May Department Stores Co. and Montgomery Ward & Co.

Sears, based in the Chicago suburb of Hoffman Estates, told the Securities and Exchange Commission that its potential liability exceeds $400 million, while some industry analysts have estimated it would be close to $1 billion.

Sears for months has been trying to put the flap behind it after discovering it had “exercised flawed legal judgment” in its handling of the debt collections.

The company pressured bankrupt customers to pay off their credit card bills even though their debts were erased when they filed for bankruptcy. Sears said it didn’t report repayment agreements to the bankruptcy court, which requires approval of such collections.

The retailer has said it is prepared to return, with interest, any money paid by customers whose so-called reaffirmation agreements were not filed with the court.

Sears was reviewing records back to 1992 to determine how many of its 60 million credit card customers were affected.