ROANOKE TIMES
Copyright (c) 1997, Roanoke Times
DATE: Friday, April 11, 1997 TAG: 9704110071
SECTION: NATIONAL/INTERNATIONAL PAGE: A-1 EDITION: METRO
DATELINE: BOSTON
SOURCE: ASSOCIATED PRESS
A bankrupt cardholder told a judge he was having trouble feeding his kids because of his Sears debt.
Sears Roebuck and Co. said Thursday it will repay bankrupt customers who were pressured to continue paying off their Sears credit cards even though their debts had been wiped out. The deal could cost tens of millions of dollars.
Stock in the nation's second largest retailer fell nearly 8 percent after Sears said the payments would affect annual earnings.
Under threat of court action and a class-action lawsuit, the company said Thursday that ``it exercised flawed legal judgment'' in its handling of the debt collections.
The company pressured bankrupt customers to pay off their credit card bills even though their debts were erased when they filed for bankruptcy. Sears said it didn't report repayment agreements to the bankruptcy court, which requires approval of such collections.
The company told U.S. Bankruptcy Court Judge Carol Kenner that it no longer will contest allegations filed against it in a class-action suit.
Sears spokeswoman Jan Drummond said the judge is prepared to fine the company $500 for each case where wrongdoing is found. In Massachusetts, there were 2,734 cases in 1995 and 1996, which would equal $1.36 million.
Edward Weller, an analyst with Robertson Stephens & Co. in San Francisco, said the agreement could cost Sears up to $75 million this year, given the vast size of Sears and its customer base.
Sears launched a nationwide internal audit after it was alerted to the case of an unemployed Somerville, Mass., man who was living off $500 monthly disability checks, Drummond said.
Francis Latanowich had $12,805 in debt discharged in bankruptcy court a year ago. But Latanowich agreed to continue paying off $1,161 he owed to Sears at $28 a month.
``Sears sent me a letter saying that I had to return the TV and stuff like that, and when I talked to them they told me that I could keep everything if I keep the credit card open,'' he testified.
In November, however, he wrote to Kenner saying he was having trouble feeding his kids and asked the judge to dismiss the Sears' debt. Kenner then opened an investigation into the matter, and eventually discovered the company had not been granted approval of the agreement.
Sears holds a secured interest in purchases made with its card, giving the company the right to reclaim purchased items when the buyer defaults on the credit card debt, or tries to wipe it out by filing for bankruptcy.
Sears then can say it will repossess the items to persuade debtors who file for bankruptcy protection to reaffirm their debts to the company.
The retailer said it is prepared to return, with interest, any money paid by customers whose so-called reaffirmation agreements were not filed with the court.
Sears declined to give a dollar figure for repayments.
Sears will review records back to 1992 to determine how many of its 60 million credit card customers were affected. Customers in all 50 states could be affected, Drummond said.
The company also said it will send each of those customers a $100 gift certificate.
Sears' stock fell $3.62 1/2 to $47.25 on the New York Stock Exchange.
LENGTH: Medium: 68 linesby CNB