FTC Settlement with Federated Department Stores to Safeguard more than $8 Million Redress to Consumers

The Federal Trade Commission has negotiated a settlement agreement with Federated Department Stores that would ensure the company makes full refunds, totaling up to $8 million or more, to consumers who, having had their Federated account debts discharged in bankruptcy proceedings, continued to make payments or faced illegal collection efforts. According to the FTC and others, Federated induced consumers who filed for bankruptcy protection to agree to reaffirm their Federated credit account debts, in order to keep their Federated credit card or merchandise. In numerous instances, the FTC alleged, Federated falsely represented that these "reaffirmation agreements" would be filed with the bankruptcy courts, as required by law, and that the consumers would be legally obligated to pay. In fact, the FTC charged, in many cases Federated did not file the agreements or the bankruptcy courts did not approve them. As a result, the agreements were not binding. Federated's practices may have affected approximately 20,000 Federated customers.

"The U.S. Bankruptcy Code gives consumers a fresh start," said Jodie Bernstein, Director of the FTC's Bureau of Consumer Protection. "Federated induced consumers to pay debts they did not legally owe. The settlement announced today is designed to prohibit Federated from engaging in such practices in the future, and to allow the FTC to follow up in federal court should the company fail to return all of the financial gain it realized through these illegal collection efforts."

Reaffirmation agreements are not illegal, according to the FTC. However, the U.S. Bankruptcy Code requires that such agreements be filed with the bankruptcy courts, and in the case of debtors not represented by legal counsel, reaffirmation agreements must be approved by the court. If not filed or approved, the agreements are unenforceable, and the underlying debts are legally discharged in bankruptcy.

Under the settlement the FTC has reached with Federated -- one of the nation's largest retailers operating such stores as Bloomingdales, Inc.; Burdines, Inc.; Rich's Department Stores, Inc.; and Macy's East, Inc.; and Macy's West, Inc. -- the company would be prohibited from misrepresenting that any reaffirmation agreement it obtains will be filed with the bankruptcy court, that any reaffirmation agreement is binding, or any other material fact while attempting to collect debts subject to a pending bankruptcy proceeding. In addition, the settlement would bar Federated from collecting debts that have been discharged in bankruptcy court proceedings.

Federated recently settled multiple state actions brought by states' Attorneys General by agreeing to provide redress to consumers who executed reaffirmation agreements that were not filed in the bankruptcy court. Those settlements required Federated to completely redress debtors, with interest, for payments wrongfully obtained.

While an independent administrator supervised the redress program and has certified that Federated has paid or credited consumers' accounts, the proposed consent agreement would preserve the Commission's right to file an action in federal District Court to seek full redress for consumers if Federated's refunds to debtors pursuant to the states' settlements totaled less than $8.2 million or if the FTC believes that Federated has failed to fulfill its obligations to make payments under its agreement with the states.

This matter is the most recent in a series of FTC cases involving major, nationwide retailers. The other cases were Sears, Roebuck and Co., File No. 972 3187; General Electric Capital Corp., File No. 972 3188; and May Department Stores Co., File No. 972 3189. The four bankruptcy reaffirmation cases have provided a major benefit to consumers. Consumers have received full redress for all monetary injury, without regard to any statute of limitations. The total redress provided has exceeded $183 million in direct payments or reductions in cash owing.

The Commission vote to accept the proposed consent agreement for a public comment period was 4-0. A summary of the agreement will be published in the Federal Register shortly. The agreement will be subject to public comment for 60 days, after which the Commission will decide whether to make it final. Comments should be addressed to the FTC, Office of the Secretary, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580.

NOTE: A consent agreement is for settlement purposes only and does not constitute an admission of a law violation. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of up to $11,000.

Copies of the complaint, proposed consent agreement, and an analysis of the agreement to assist the public in commenting are available from the FTC's web site at http://www.ftc.gov and also from the FTC's Public Reference Branch, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-2222; TTY for the hearing impaired 1-866-653-4261. Consent agreements subject to public comment also are available by calling 202-326-3627. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.

(FTC File No.982 3525)