Sears, Roebuck and Co

Text (OCR of the scan at left; may contain errors)

IN THE MA TTER OF SEARS , ROEBUCK AND CO.

CONSENT ORDER, ETC, IN REGARD TO ALLEGED VIOLATION OF SEC 5 OF THE FEDERAL TRADE COMMISSION ACT Docket 3786. Complaint, Feb. 20, 1998--Decision, Feb. 20, 1998 This consent order prohibits, among other things, the Ilinois-based retail corporation from misrepresenting that any reaffirmation agreement it obtains will be filed with the bankptcy court, that any reaffirmation agreement is binding, or any other material fact while attempting to collect debts subject to a pending bankptcy proceeding. In addition, the consent order prohibits the respondent from coIIecting debts that have been discharged in bankrptcy proceedings. The consent order also preserves the Commission s right to file an action in federal district court to seek full redress for consumers if Scars refunds to debtors pursuant to a separate class action lawsuit settlement total less than $ I 00 miIIion.

Appearances For the Commission: Paul Block, John Dugan and Phoebe Morse. For the respondent: Stephen H. Olesky, Hale Dorr Boston MA Theodore N. Mirvis, Wachtell, Lipton, Rosen Katz New York, N. Y. and Ronald 1. Rose, Dykema Gossett Bloomfield Hills MI.

COMPLAINT The Federal Trade Commission, having reason to believe that Sears, Roebuck and Co., a corporation ("respondent"), has violated the provisions ofthe Federal Trade Commission Act, and it appearing to the Commission that this proceeding is in the public interest alleges:

I. Respondent Sears, Roebuck and Co. is a New Yorkcorporation with its principal offce or place of business at 3333 Beverly Road Hoffman Estates, Ilinois. Respondent is engaged in, among other things, thc consumer retail business. In thc course and conduct of its business, respondent has regularly extended credit for the purpose of facilitating consumers' purchase of respondent's products and services (hereinafter referred to as "consumer credit accounts Complaint 125 FTC. 2. The acts and practices ofrespondent alleged in this complaint have been in or affecting commerce, as "commerce" is defined in Section 4 of the Federal Trade Commission Act. THE UNITED STATES BANKRUPTCY CODE c. 1- 1330), 3. Under the United States Banruptcy Code (II US. a debtor may be granted a discharge in a Chapter 7 bankptcy proceeding from debts that have arisen prior to the filing of the bankrptcy petition (hereinafter referred to as "pre-petition debts meaning that the debtor is no longer individually liable for these debts. The granting of a discharge "operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, recover or offset any such debt as a personalliabiJjty of the debtor, whether or not discharge of such debt is waived. . . . " 11 U.sc. 523(a)(2). The purpose of the injunction to protect the debtor s "fresh star" by ensuring that no debt collection efforts are taken against the debtor personally for pre-petition debts. 4. The United States Bankruptcy Code provides, however, that a debtor may agree with a creditor that the creditor can enforce what would otherwise be a discharged debt. In other words, a debtor may reaffrm his or her pre-petition debts, as long as certain rcquirements are met. These so-called "reaffrmation agreements" are enforceable filed with theonly if, among other things, the agreement is bankrptcy court. If the debtor is not represented by an attorney, the bankuptcy court must hold a hearing to determine that the reaffrmation agreement would not impose an undue hardship on the debtor and is in the best interest of the debtor, and must approve the reaffrmation agreement before it becomes enforceable. 11 U. 524(c) and (d).

5. If the requirements of II US.c. 524(c) and (d) are not met, an agreement to reaffrm a debt is not binding and a creditor violates the c. 524(a).bankptcy code ifit attempts to collect that debt. 11 US. VIOLATIONS OF SECTIO:- 5(a) OF THE FEDERAL TRADE COMMISSION ACT 6. From at least 1985 to 1997, respondent regularly induced consumers who had filed for protection under Chapter 7 of the United States Banptcy Code to enter into agreements reaffrming some or all of their pre-petition consumer crcdit account debts that would otherwise be discharged through bankptcy proceedings. SEARS, ROEBlJCK AND CO. 397 395 Decision and Order 7. In numerous instances, respondent represented, expressly or by implication, to consumers that their reaffrmation agreements would be fied with the bankrptcy courts, as required by the United States Bankptcy Code.

8. In truth and in fact, in many cases respondent did not intend to file, and in fact did not file, the reaffrmation agreements with the bankrptcy courts. Therefore, the representation made in paragraph seven was, and is, false or misleading.

9. In numerous instances, respondent represented, expressly or by implication, to consumers that their reaffirmation agreements were legally binding on the consumers and that the consumers were legally required to pay their pre-petition debts. 10. In truth and in fact, in many cases, the reaffrmation agreements were not legally binding on the consumers and the consumers were not legally required to pay their pre-petition debts for reasons including, but not necessarily limited to, the following: (a) respondent did not file the reaffirmation agreements with the bankptcy courts; or (b) respondent fied the reaffirmation agreements, but the agreements were then not approved by the bankruptcy courts. Therefore, the representation made in paragraph nine was, and is, false or misleading.

II. In the course and conduct of its business, respondent regularly collected from consumers debts that had been legally discharged in banptcy proceedings and that respondent was not permitted by law to collect. Respondent' s aetions have caused or were likely to cause substantial injury to consumers that is not offset by any countervailing benefits and is not reasonably avoidable by these consumers. 15 US. c. 5(n). Therefore, respondent's collection of debts that it was not permitted by law to collect was, and is, unfair. 12. The acts and practices of respondent as alleged in this complaint constitute unfair or deceptive acts or practices in or affecting commerce in violation of Section 5(a) of the Federal Trade Commission Aet.

Commissioner Azcuenaga not participating. DECISION AN ORDER The Federal Trade Commission having initiated an investigation of certain acts and practices of the respondent named in the caption hereof, and the respondent having been furnished thereafter with a Decision and Order 125 FTC. copy of a draft of complaint which the Boston Regional Offce and the Division of Credit Practices proposed to present to the Commission for its consideration and which, if issued by the Commission, would charge respondent with violation of the Federal Trade Commission Act; and The respondent, its attorneys, and counsel for the Commission having thereafter executed an agreement containing a consent order an admission by the respondent of all the jurisdictional facts set forth in the aforesaid draft of complaint, and waivers and other provisions as required by the Commission s Rules; and The Commission having thereafter considered the matter and having determined that it had reason to believe that the respondent had violated the said Act, and that a complaint should issue stating its charges in that respect, and having thereupon accepted the executed consent agreement and placed such agreement on the public record for a period of sixty (60) days, and having duly considered the comments filed thereafter by interested persons pursuant to Section 34 of its Rules, now in further conformity with the procedure prescribed in Section 2.34 of its Rules, the Commission hereby issues its complaint, makes the following jurisdictional findings and enters thc following order:

1. Respondent Sears, Roebuck and Co. is a corporation organized existing, and doing business under and by virtue of the laws of the State of New York, with its offces and principal place of business located at 3333 Beverly Road, Hoffman Estates, Ilinois. 2. The Federal Trade Commission has jurisdiction of the subject matter of this proceeding and of the respondent, and the proceeding is in the public interest.

ORDER DEFINITE0NS For purposes of this order, the following definitions shall apply: 1. Unless otherwise specified respondent shall mean Sears Roebuck and Co., a corporation, its successors and assigns, and its officers, agents, representatives, and employees. 2. "Debt shall mean any obligation or alleged obligation of a consumer to pay money arising out of any transaction. SEARS, ROEBUCK AND CO. 399 395 Dccision and Order 3. "Reaffrmation agreement shall mean any agreement between a creditor and debtor in bankptcy whereby a debt that is otherwise dischargeable with respect to the personal liability of the debtor is reaffnned by the debtor.

4. "Commerce shall mean as defined in Section 4 of the Federal Trade Commission Act, 15 US. C. 44.

It is ordered That respondent, directly or through any corporation, subsidiar, division, or other device, in connection with the collection of any debt, shall not:

A. Misrepresent, expressly or by implication, to consumers who have filed petitions for bankptcy protection under the United States Bankruptcy Code that reaffnnation agreements will be filed in bankptcy court;

B. Misrepresent, expressly or by implication, to consumers who have filed petitions for bankptcy protection under the United States Bankptcy Code that any reaffnnation agreement is legally binding on the consumer; or C. Collect any debt (including any interest, fee, charge, or expense incidental to the principal obligation) that has been legally discharged in bankptcy proceedings and that respondent is not pennitted by law to collect.

II.

It is further ordered That respondent, directly or through any corporation, subsidiar, division, or other device, shall not make any material misrepresentation, expressly or by implication, in the collection of any debt subject to a pending bankptcy proceeding. It is further ordered That respondent Sears, Roebuck and Co. and its successors and assigns, for five (5) years after the date of issuance ofthis order, shall maintain and upon request make available to the Federal Trade Commission business records demonstrating their compliance with the tenns and provisions of this order including but not limited to all reaffrmation agreements signed by consumers and records sufficient to show that such reaffnnation agreements were filed in bankptcy courts and were subsequently Decision and Order 125 FTC. approved by bankrptcy courts as part of the underlying bankrptcy proceedings, if required by the United States Bankrptcy Code. IV.

It is further ordered That respondent Sears, Roebuck and Co. and its successors and assigns, for five (5) years after the date of issuance of this order, shall deliver a copy of this order to all current and future principals, offcers, directors, managerial employees, and bankruptcy court representatives having debt collection responsibilities with respect to the subject matter of this order, and shall secure ITom each such person a signed and dated statement acknowledging receipt of the order. Respondent shall, for five (5) years after each such statement acknowledging receipt of the order is signed and dated, maintain and upon request make available to the Federal Trade Commission for inspection and copying such statements. Respondent shall deliver this ordcr to current personnel within thirty (30) days after the date of service of this order, and to future personnel within ninety (90) days after the person assumes such position or responsibilities. .

It is further ordered That respondent Sears, Roebuck and Co. and its successors and assigns, shall notify the Commission at least thirty (30) days prior to any change in the corporation(s) that may affect compliance obligations arising under this order, including but not limited to a dissolution, assignment, sale, merger, or other action that would result in the emergence of a successor corporation; the creation or dissolution of a subsidiary, parent, or affiliate that engages in any acts or practices subject to this order; the proposed filing of a bankptcy petition; or a change in the corporate name or address. Provided, however, that, with respect to any proposed change in the corporation about which respondent learns less than thirty (30) days prior to the date such action is to take place, respondent shall notify the Commission as soon as is practicable after obtaining such knowledge. All notices required by this Part shall be sent by certified mail to the Associate Director, Division of Enforcement, Bureau of Consumer Protection, Federal Trade Commission, Washington, D, SEARS, ROEBUCK AND CO. 401 395 Decision and Order VI.

It is further ordered That respondent, and its successors and assigns, shall provide notification of all proposed settlement terms relating to the action filed by the United States Attorney for the District of Massachusetts in United States of America v. Sears Roebuck and Co. Civil No. 97- 10839JLT, allegations made by the Attorneys General of various states and any other currently pending legal actions by governent entities not cited herein, and all curently pending class action lawsuits, against respondent or any of its predecessors or affliates, that challenge conduct similar to that challenged by the Commission in this proceeding, to the Associate Director, Division of Enforcement, Bureau of Consumer Protection Federal Trade Commission, in writing, at least ten (10) days before any such proposed settlement is submitted to a court for final approval.

VII.

It is That respondent Sears, Roebuck and Co. further ordered and its successors and assigns, shan, within sixty (60) days after the date of service of this order, and at such other times as the Federal Trade Commission may require, file with the Commission a report in writing, setting forth in detail the manner and form in which they have complied with this order.

VII This order win terminate on February 20, 2018, or twenty (20) years ITom the most recent date that the United States or the Federal Trade Commission fies a complaint (with or without an accompanying consent decree) in federal court alleging any violation ofthe order, whichever comes later; provided, however, that the filing of such a complaint will not affect the duration of: A. Any Part in this order that terminates in less than twenty (20) years;

B. This order s application to any respondent that is not named as a defendant in such complaint; and C. This order if such complaint is fied after the order has terminated pursuant to this Part.

Decision and Order 125 FTC. Provided, further, that if such complaint is dismissed or a federal court rules that the respondent did not violate any provision of the order, and the dismissal or ruling is either not appealed or upheld on appeal, then the order will terminate according to this Part as though the complaint had never been fied, except that the order will not terminate between the date such complaint is filed and the later of the deadline for appealing such dismissal or ruling and the date such dismissal or ruling is upheld on appeal.

Commissioner Azcuenaga not participating. AMERICAN ONLINE, INC 403 403 Complaint