Sears Will Repay Bankrupt Patrons
Sears, Roebuck & Co. has agreed to a $273-million settlement with about 190,000 credit card holders who were wrongly coerced into paying their bills after declaring bankruptcy, lawyers said Tuesday.
The class-action settlement--believed to be the largest of its kind--is in addition to $40 million in penalties Sears agreed in June to pay to all 50 states for pressuring the consumers to pay money they did not owe.
Sears lawyer Mark Polebaum told a joint hearing of a U.S. District Court and a U.S. Bankruptcy Court in Boston that the class-action settlement is “fair, reasonable and adequate.”
“The average consumer will receive in excess of 140% of what he or she paid to Sears,” he said.
Sears pressured many consumers who had declared bankruptcy to sign “reaffirmation agreements” to continue to pay their credit card debts to the retailer.
The company failed to file the agreements with the Bankruptcy Court, as required by law, and continued to collect debts that had, in effect, been wiped out by the courts.
John Roddy, the lead attorney representing the plaintiffs, said he believes the settlement is the largest proportional recovery of individual damages ever obtained in a national class-action lawsuit.
“By any measure, this is really an extraordinary settlement,” he told the court.
The settlement doesn’t put to rest Sears’ problems with bankrupt or tardy customers. The retailer said two weeks ago that its fourth-quarter profit may be disappointing as more customers fall behind on credit card payments, leading the company to increase the money it sets aside to cover uncollectable debts.
The $273 million does not include lawyers’ fees, or the $14 million Sears spent identifying the customers eligible for the settlement payments. Sears also lost $6 million by placing a moratorium in April on the collection of finance charges on debtors involved in the dispute.
The stock price of Hoffman Estates, Ill.-based Sears has dropped more than 15% in the last 12 months, largely because of the debt controversy. Shares rose $1.31 on Tuesday to close at $41.19 on the New York Stock Exchange.
Sears posted a $320-million charge in the second quarter to cover the settlement, and the company has adopted 100 recommendations from a bankruptcy expert on how to handle accounts belonging to customers who filed for bankruptcy protection.
The settlement includes cash payments of $158 million to credit card holders who had claims dating from January 1992, and a waiver of $115 million in previous credit card bills against the consumers, Polebaum said.
