Sears to Reimburse Customers for Credit Card Rate Hike

Sears, Roebuck & Co., the largest U.S. department store company, said it will pay as much as $157.5 million to settle claims that it fraudulently raised interest rates on its credit cards.

Sears will pay $36 million to reimburse credit card customers for paying the higher-than-promised interest rates and will issue $118.5 million in store coupons to cardholders. Sears also will pay $3 million for consumer-education programs about credit practices.

Sears customers filed suit after the retailer’s credit unit acquired a nationally chartered bank in Arizona in 1995 and transferred credit card customers’ balances to the unit, renamed Sears National Bank, N.A.

The move allowed Sears to impose a nationwide 21% interest rate on its cards. Previously, the rate Sears could charge on its cards was governed by state laws.

Some customers contended that Sears promised not to boost the 18% rate on remaining balances.

Sears executives denied any wrongdoing, saying they properly informed customers of the change. Sears also said it gave customers the option to pay off balances under the lower rate.

The class-action settlement, which applies to an estimated 11 million customers, requires approval by a federal judge in Chicago, the company said.

More than 3 million cardholders who had interest rates raised on remaining balances will get $36 million in cash and another $36 million in coupons. The average recovery per cardholder in this category will be $23.80, Sears said.

In addition, 11 million cardholders will get store coupons worth $7.50 each. That accounts for $82.5 million of the settlement.