50-State Settlement Resolves Charges over Collection of "Reaffirmed Debts" from Consumers in Bankruptcy
A settlement agreement that the Federal Trade Commission has negotiated with General Electric Capital Corporation and its wholly-owned subsidiary, Montgomery Ward Credit Corporation (collectively, "GE Capital"), would ensure that GE Capital makes full refunds totaling at least $60 million to consumers who faced illegal collection. According to the FTC, GE Capital regularly sought out consumers who filed for bankruptcy protection to persuade them to "reaffirm" credit account debts and falsely represented that these "reaffirmation agreements" would be filed with the bankruptcy courts, as required by law. In fact, the FTC charges, in many cases GE Capital did not file the agreements or the bankruptcy courts did not approve the agreements. The reaffirmation agreements were, therefore, not legally binding on consumers. Nevertheless, the FTC alleges, GE Capital unfairly collected many of these debts. In obtaining redress for consumers, the FTC coordinated its actions with the actions of state Attorneys General nationwide. The FTC settlement preserves the Commission's right to file an action in federal District Court to seek full redress for consumers if the company's refunds to debtors through the agreements with the states total less than $60 million, or if the FTC believes that GE Capital has failed to fulfill any of its other obligations under the settlement with the states.
"The U.S. Bankruptcy Code gives consumers a fresh start," said Jodie Bernstein, Director of the FTC's Bureau of Consumer Protection. "GE Capital induced consumers to pay debts they did not legally owe. The settlement announced today is designed to prohibit GE Capital from engaging in such practices in the future, and to allow the FTC to follow up in federal court should the company fail to return all of the financial gain it realized through these illegal collection efforts."
Reaffirmation agreements are not illegal, according to the FTC. However, the U.S. Bankruptcy Code requires that such agreements be filed with the bankruptcy courts, and in the case of debtors not represented by legal counsel, reaffirmation agreements must be approved by the court. If not filed or approved, the agreements are unenforceable, and the underlying debts are legally discharged in bankruptcy.
The proposed settlement to these charges, announced today for a public comment period before the Commission makes it final, would prohibit GE Capital from misrepresenting that any reaffirmation agreement has been or will be filed with the bankruptcy court, or that any reaffirmation agreement is binding. Further, the proposed settlement would prohibit GE Capital from collecting any debt arising out of an extension of open-end credit, such as credit card debt, that has been legally discharged in bankruptcy proceedings and that GE Capital is not permitted by law to collect. In addition, GE Capital would be prohibited from misrepresenting any other material fact while attempting to collect debts arising out of extensions of open-end credit subject to pending bankruptcy proceedings.
The FTC worked closely in this matter with the Office of the United States Trustee and the state Attorneys General.
The Commission vote to accept the proposed consent agreement for a public comment period was 4-0. A summary of the agreement will be published in the Federal Register shortly. The agreement will be subject to public comment for 60 days, after which the Commission will decide whether to make it final. Comments should be addressed to the FTC, Office of the Secretary, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580.
NOTE: A consent agreement is for settlement purposes only and does not constitute an admission of a law violation. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of up to $11,000.
Copies of the complaint and proposed settlement are available from the FTC's web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-FTC-HELP (202-382-4357); TDD for the hearing impaired 1-866-653-4261. Consent agreements subject to public comment also are available by calling 202-326-3627. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.
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