May Co. Agrees to Pay $27-Million Settlement

May Department Stores Co. agreed to pay up to $27 million to settle lawsuits and consumer complaints accusing the department store operator of illegally collecting credit card payments from bankrupt customers.

The settlement was made public Monday by Pennsylvania Atty. Gen. Mike Fisher, Federal Trade Commission officials and lawyers for May credit cardholders. It calls for May to pay as much as $20 million to more than 37,000 customers nationwide whose debt-repayment contracts--called reaffirmation agreements--weren’t properly filed in bankruptcy courts.

The company also will pay $7 million to 27 states, including California, to settle complaints by state attorneys general and the FTC over the debt-collection tactic. The money will be used to pay for things like consumer-fraud education programs, Fisher said.

“Many consumers consider bankruptcy the debt management option of last resort,” said Jodie Bernstein, head of the FTC’s Bureau of Consumer Protection. “Unfortunately, many of May’s customers weren’t given a fair chance at a fresh start the [bankruptcy] process offers.”

Reaffirmation agreements are used by companies to push customers to pay off debts eligible to be forgiven in bankruptcy proceedings. To be legal, such agreements must be filed in court so they can be reviewed by a judge.

Use of the debt collection tactic has gotten other retailers and credit card companies in trouble in the last several years. Sears, Roebuck & Co. ultimately paid $273 million in 1997 to settle a class-action lawsuit filed by 190,000 cardholders.

Officials of St. Louis-based May, which posted record revenue of $12.4 billion last year, said they were pleased to have the case resolved.

“The total amount to be paid is covered by reserves,” said Rhonda West, a spokeswoman for the department store chain.

May cardholders filed suit last year against the chain--which operates such tony department stores as Lord & Taylor, Hecht’s and Strawbridge’s as well as May department stores--for using the tactic, said John Roddy, a Boston attorney representing consumers.

May agreed in the settlement to make full refunds to more than 37,000 customers who paid debts under agreements that were not filed, Roddy said. That ultimately could cost the company as much as $20 million when all claims are calculated, he said.

Any unpaid loan balances will be wiped out, and customers will get interest on any wrongfully collected payments. May also has agreed to ensure that all reaffirmation agreements are properly filed in the future, Roddy added.

May’s shares rose 56 cents to $61.56 on the New York Stock Exchange.