FTC Settlement With The May Department Stores Company to Safeguard $15 Million Redress to Consumers;

Resolves Charges over Collection of "Reaffirmed Debts" from Consumers in Bankruptcy

For Release

The Federal Trade Commission has negotiated a settlement agreement with The May Department Stores Company (May), one of the largest department store operators in the country, to make full refunds totaling at least $15 million to consumers who ­ having had their credit card account debts discharged in bankruptcy proceedings ­ continued to make payments or face illegal collection efforts. According to the FTC, May 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 May 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, May unfairly collected many of these debts. In safeguarding redress for consumers, the FTC coordinated its actions with the actions of many state Attorneys General. 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 or through a related class action total less than $15 million.

The May Department Stores Company is a New York corporation, with its principal offices in St. Louis, Missouri. The company owns and operates many well-known department stores, including Lord & Taylor, Hecht's, Strawbridge's, Foleys, Robinsons-May, Kaufmann's, Filene's, Famous Barr, L.S. Ayres and Meier & Frank.

"Many consumers consider bankruptcy the debt management option of last resort," said Jodie Bernstein, Director of the FTC's Bureau of Consumer Protection. "Unfortunately, many of May's customers were not given a fair chance at the fresh start that the process offers. This settlement will allow the FTC to follow up in federal court should May fail to return 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 May from misrepresenting that any reaffirmation agreement will be filed with the bankruptcy court, or that any reaffirmation agreement is binding. Further, the proposed settlement would prohibit May from collecting any debt that has been legally discharged in bankruptcy proceedings and that May is not permitted by law to collect. In addition, May would be prohibited from misrepresenting any other material fact while attempting to collect debts subject to pending bankruptcy proceedings.

The FTC worked closely in this matter with the Office of the United States Bankruptcy Trustee and many 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.

(FTC File No.: 972 3189)

Contact Information

Media Contact:
Howard Shapiro,
Office of Public Affairs
202-326-2176
Staff Contact:
Andrew D. Caverly or John T. Dugan
Boston Regional Office
101 Merrimac Street, Suite 810
Boston, Massachusetts 02114-4719
(617)-424-5960