Federated Settles With 20 States Retailer Improperly Collected Debts From Bankrupt Patrons

Federated Department Stores Inc. on Tuesday agreed to a $14.64 million settlement with attorneys general in 20 states for improperly collecting payments from bankrupt credit card customers.

According to the settlement, the department store wrongly enticed and threatened customers who filed for Chapter 7 bankruptcy to sign contracts agreeing to repay all or part of their debt rather than have it erased in bankruptcy.

Federated failed to secure court approval of the debt repayment with a bankruptcy court judge in 13,500 cases during the past five years, according to the settlement.

“Although the debt had been legally discharged by the bankruptcy court, Federated stores led consumers to believe they still had to pay back the debt,” Washington state Attorney General Christine Gregoire said when announcing the settlement.

Washington’s share of the settlement will be $1.6 million. Of that amount, $1 million will be returned to 3,100 consumers, some of whom live in Eastern Washington.

The rest will cover civil penalties and legal costs.

In August, Federated agreed to pay $4.3 million to settle a similar class-action lawsuit filed by individual consumers.

Tuesday’s settlement includes $5 million to be paid to customers who signed the reaffirmation agreements and $2.5 million to reimburse the states for the costs of filing the litigation. Federated also agreed to forgive $6.9 million of improperly obtained debts and also will contribute $240,000 to an educational fund.

Affected customers will have all of their reaffirmed debt stricken, with Federated waiving any right to repossess merchandise. In addition, they will be reimbursed or receive credit for finance charges and penalties charged by Federated.

Federated’s settlement is similar to a $365 million national settlement last year involving Sears, Roebuck & Co.

Federated, with annual sales of more than $15 billion, operates more than 400 department stores and 150 specialty stores in 36 states under the names of Bloomingdale’s, The Bon Marche, Burdines, Goldsmith’s, Lazarus, Macy’s, Rich’s and Stern’s.

Besides Washington, the states involved in the settlement are: Alabama, California, Florida, Georgia, Idaho, Illinois, Indiana, Kentucky, Massachusetts, New Hampshire, New Jersey, New Mexico, Nevada, New York, Ohio, Oregon, South Carolina, Tennessee and Pennsylvania.

, DataTimes