Levitz to Pay $10 Million in Credit Dispute

State insurance regulators and four district attorneys on Tuesday announced a $10-million settlement with the Levitz Furniture chain, which had been accused of misleading an estimated 300,000 California customers into buying insurance when they applied for revolving credit.

The large size of the settlement--which includes a $2-million civil penalty--is aimed at discouraging other retailers from engaging in the same practice, Insurance Commissioner Chuck Quackenbush said. He also said investigators posing as shoppers are on the lookout for other stores involved in the same activity.

“I’m concerned that this is a practice prevalent throughout the retail industry,” Quackenbush said.

The deal settles a claim filed by the Department of Insurance last year against Boca Raton, Fla.-based Levitz and American Bankers Insurance Co. of Miami, American Bankers Life Assurance Co. of Florida and General Electric Capital Corp. of Stamford, Conn.

The firms were accused of unfair and illegal business practices in selling credit insurance, although Levitz was the chief target of the investigation.

As part of the settlement, none of the firms has admitted wrongdoing.

A 1995 undercover investigation found that Levitz salespeople allegedly often misled customers into purchasing credit life, disability, involuntary unemployment and property insurance when they applied for credit to finance their furniture purchases. On a $1,000 credit balance, a Levitz customer could have ended up paying $9 a month for insurance coverage he or she had unknowingly signed up for.

Credit insurance is an add-on service that’s sold to people who are financing cars, furniture and other consumer goods; it promises to pay off a specific debt if the credit holder cannot repay it.

Hidden cameras used by investigators posing as shoppers showed Levitz salespeople telling customers that the insurance was free or wasn’t insurance at all.

“The problem was that the purchase of insurance was not disclosed or disclosed clearly,” said Thomas A. Papageorge, head of the Los Angeles district attorney’s consumer protection division. The district attorneys of Los Angeles, Alameda, San Mateo and San Diego counties participated in the investigation.

Edward Zimmer, vice president of Levitz Furniture, which has 35 stores in California, said the company has adopted easier-to-understand sales contracts that make it clear when a person is buying insurance.

Officials from the other firms involved in the settlement could not be reached for comment.

Under the settlement, the Levitz customers in California who purchased the insurance between January 1993 and February 1997 will be contacted and allowed to apply for a refund. Customers will either receive cash or a credit on their current Levitz balance. Most customers should get between $30 and $100, officials estimated.

In addition, Levitz and the other firms have agreed to pay for the cost of the investigation as well as the $2-million civil penalty.

Levitz’s shares were unchanged Tuesday at $1.19 on the New York Stock Exchange.