By Nicole D. Prysby, J.D.
New York Attorney General Letitia James and the Consumer Financial Protection Bureau have announced an $11 million settlement with Sterling Jewelers Inc. (doing business as Kay Jewelers, Jared The Galleria of Jewelry, and several other brands) resolving charges that Sterling signed consumers up for store credit cards and enrolled consumers in a credit insurance product without their knowledge or consent, and misrepresented the terms of the store cards. The complaint alleged violations of the Consumer Financial Protection Act of 2010; the Truth in Lending Act and Regulation Z; and New York state law. The New York AG’s press release notes that the Bureau will receive $10 million of the penalty and the State of New York will receive the remaining $1 million.
In addition to the $11 million civil penalty, Sterling is prohibited by the consent order from engaging in deceptive practices such as misrepresenting the reasons for requesting consumers’ personal information or misrepresenting the applicable financing terms for store cards. The company is also prohibited from issuing credit cards to consumers without the consumers’ knowledge and consent. Finally, Sterling is prohibited from failing to disclose clearly and prominently to consumers that they are enrolling in an optional payment-protection insurance product and the terms of such product. The company must submit a compliance progress report within 90 days and complete compliance recordkeeping tasks for at least five years.
Sterling operates approximately 1,500 stores throughout the United States and since 1990 has offered in-house financing to consumers. About 60 percent of Sterling’s total sales are financed by consumers using Sterling’s in-house credit. From 2014 through 2017, Sterling had over three million open credit accounts each year, generating more than $300 million in net revenue each year.
According to the complaint filed in the federal district court for the Southern District of New York, Sterling pressures employees to enroll consumers in company credit cards and to sell its financing plans and payment-protection insurance. Salespeople misrepresented financing terms, omitted necessary information, failed to inform consumers that they were applying for credit, and misstated the reasons for requesting the consumers’ personal information. For example, salespeople offered to check whether a consumer qualified for a line of credit, but in fact actually submitted a credit application for the consumer. They also erroneously told consumers there would be no "hard inquiry" on their credit reports. In other instances, Sterling’s sales representatives informed consumers that they were collecting personal information for a survey or to place a custom order for the consumer when, in fact, the information was used to complete a credit application.
The complaint also alleges that many of Sterling’s store managers and district managers encouraged deceptive tactics to induce consumers to apply for a credit card, "and many turned a blind eye to such conduct." Sterling’s companywide performance standards required employees at stores located in shopping malls to complete one credit card application a day. Employees at standalone stores were required to obtain one credit application every two days. In some cases, employees were counseled or terminated after failing to meet credit-application quotas.
Companies: Jared The Galleria of Jewelry; Kay Jewelers; Sterling Jewelers Inc.
MainStory: TopStory CFPB CreditDebitGiftCards EnforcementActions NewYorkNews StateBankingLaws TruthInLending UDAAP
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