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A settlement agreement that the Federal Trade Commission has negotiated with Sears, Roebuck and Co. would give the agency a tool to ensure that Sears makes full refunds totaling up to $100 million or more to consumers who, having had their Sears account debts discharged in bankruptcy proceedings, continued to make payments or face illegal collection efforts. According to the FTC and others, Sears induced consumers who filed for bankruptcy protection to agree to reaffirm their Sears credit account debts, in order to keep their Sears credit card or merchandise. In numerous instances, the FTC alleged, Sears falsely represented that these "reaffirmation agreements" would be filed with the bankruptcy courts, as required by law, and that the consumers would be legally obligated to pay. In fact, the FTC charged, in many cases Sears did not file the agreements or the bankruptcy courts did not approve them. As a result, the agreements were not binding. Sears' practices may have affected more than 200,000 Sears customers. The FTC action was coordinated with settlement of a class action lawsuit against Sears, to be submitted to the U.S. Bankruptcy Court in Boston tomorrow.

"Since at least 1985, Sears has undermined some very important consumer protections embedded in the American bankruptcy process," said Jodie Bernstein, Director of the FTC's Bureau of Consumer Protection. "This process is designed to give consumers in dire financial circumstances a fresh start by protecting them from creditors, and in some instances, from themselves. Yet, ignoring steps prescribed by law, Sears induced consumers to pay debts they did not legally owe. The settlement announced today is designed to prohibit Sears from engaging in such practices in the future, and to allow the FTC to follow up in federal court should Sears fail to return all of the financial gain it realized through these illegal collection efforts.

"We are very concerned about any effort to collect debts under a reaffirmation agreement that is not properly filed or approved," Bernstein continued. "To the extent that any retailer contacts consumers in bankruptcy, and offers them the chance to keep credit or merchandise purchased on secured credit by signing a reaffirmation agreement, that agreement must be filed and, in some cases, approved by the court. Otherwise, consumers are NOT obligated to pay."

Under the settlement the FTC has reached with Sears, one of the nation's largest retailers would be prohibited from misrepresenting that any reaffirmation agreement it obtains will be filed with the bankruptcy court, that any reaffirmation agreement is binding, or any other material fact while attempting to collect debts subject to a pending bankruptcy proceeding. In addition, the settlement would bar Sears from collecting debts that have been discharged in bankruptcy court proceedings.

The proposed consent agreement also preserves the Commission's right to file an action in federal district court to seek full redress for consumers if Sears' refunds to debtors pursuant to the class action lawsuit settlement total less than $100 million. (This amount could be adjusted up or down by not more than 25 percent, based on the results of Sears' ongoing process of identifying consumers eligible for redress.) The class action settlement requires Sears to completely redress debtors, with interest, for payments wrongfully obtained.

The Commission vote to accept the proposed consent agreement for a public comment period was 5-0. 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, proposed consent agreement, and an announcement of the agreement to assist the public in commenting are available from the FTC's web site at and also from the FTC's Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-2222; TTY 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 3187)

Contact Information

Media Contact:
Bonnie Jansen
Office of Public Affairs
202-326-2161 or 202-326-2180
Staff Contact:

David Medine
Bureau of Consumer Protection


Paul Block
Boston Regional Office
101 Merrimac Street, Suite 810
Boston, Massachusetts 02114-4719