Miller: Sears Used Illegal Collection Practices

Sears Agrees to Pay $125 Million to Customers, $40 Million to States

DES MOINES-- Sears, Roebuck & Co. systematically used illegal collection practices to pressure consumers to make payments on debts even after the debtor was protected by a bankruptcy order, Attorney General Tom Miller said today.

"But now Sears will have to make it right," Miller said.

Iowa and 39 other States presented a settlement agreement to a bankruptcy court judge for approval today in Boston to resolve the States' complaint.

"Sears has agreed to repay $125 million for consumer debts it obtained illegally. The company also will forgive millions of dollars in current consumer debts and pay $40 million to the States for consumer education and litigation," Miller said.

"And of course Sears will be prohibited from using illegal debt collection practices in the future," he said. "This agreement corrects the situation and gets money back into the hands of consumers who were treated unfairly and unlawfully."

"Sears obtained payments by threatening to repossess consumer goods, and they did it without the knowledge and approval of the bankruptcy court, which is required by law," Miller said.

The States alleged that Sears illegally obtained "reaffirmation agreements" from Sears customers in bankruptcy. A reaffirmation agreement is a written contract under which a bankruptcy debtor agrees to pay a particular debt even though the debt would otherwise be discharged in bankruptcy. But such agreements must be voluntary, and they must be filed with the bankruptcy court and reviewed by the court -- requirements that were ignored by Sears, according to the States.

Miller said the Sears agreement was one of the largest multi-state settlements negotiated by State Attorneys General.

Details for Consumers

Customers affected after 1992 do NOT need to contact Sears or the Attorney General's Office.

Customers affected prior to 1992 are eligible for the same restitution, but they will need to file documents to prove their claim (such as a copy of the reaffirmation agreement and documentation of payments made.) Sears is required to assist customers in verifying affirmation agreement prior to 1992.

Customers affected prior to 1992 may call the Attorney General's Consumer Protection Division for more information: 515-281-5926.

The amounts that will go to Iowa consumers and to the states has not been determined. If Sears required payments to customers should be under $125 million, the difference will also be paid to the States for consumer education and litigation. Compensation payable to consumers that cannot be made after good faith efforts also will be returned to the States, not Sears.

How Sears' Collection Practices Came to Light

Sears' unlawful conduct first came to light in the U.S. Bankruptcy Court in Boston. After several individual cases regarding the company's illegal reaffirmation agreements came before Chief Bankruptcy Judge Carole Kenner, the judge ordered Sears to identify all cases where the company had failed to file reaffirmation agreements. In response, Sears identified 2,733 cases in Massachusetts alone, and shortly thereafter admitted that its reaffirmation practice was national in scope and affected thousands of debtors.