Business Copyright © 1998 The Seattle Times Company

Posted at 02:10 a.m. PST; Wednesday, February 18, 1998

Federated Department Stores - The Bon, Bloomingdale's, and Macy's.

The Bon Marche Bankrupt Bon patrons join settlement

by Putsata Reang
Seattle Times business reporter

More than 3,000 customers of The Bon Marche who had filed for bankruptcy in Washington state will receive part of a $7.5 million national settlement because the retailer's parent company improperly collected debts.

Federated Department Stores, the country's largest department-store group, agreed to pay the money after a Washington state-led investigation into illegal debt-collection practices. Federated's stores include The Bon, Bloomingdale's and Macy's.

Washington's share of the settlement is $1.6 million, of which $1 million will be paid as restitution to customers. The state will receive $450,000 in civil penalties and $150,000 for legal fees.

For the past five years, Federated stores offered customers who had filed for bankruptcy new credit under what's called a "reaffirmation plan." That allows debtors to get new credit cards if they agree to pay part or all of their department-store balances.

The practice forces debtors to pay back money they are not legally required to pay after they've already filed for bankruptcy.

Companies have a right to renegotiate debts of customers who seek bankruptcy protection. But Federated broke the law when it failed to get approval from a federal bankruptcy-court judge regarding the reaffirmation plans. Such approval helps protect consumers from getting on a repayment schedule they can't afford.

Federated officials say their company is not the only retailer that failed to report its reaffirmations.

"This was fairly common industry practice," said Federated spokeswoman Carol Sanger. "It was not right, but it was handled that way until the Sears case became public."

The "Sears case" exploded last April when Sears Roebuck, the second-largest U.S. retailer, was caught using the same practices. Sears agreed to reimburse customers and states $365 million.

Federated started its own investigation shortly after the Sears case made headlines. In Massachusetts last August, Federated agreed to pay $4.3 million to its customers there who sued over improper collection of payments.

In Washington, the state Attorney General's Office teamed up with the region's U.S. Trustee in the Department of Justice to investigate the situation early last summer. The probe was prompted by a federal bankruptcy-court judge who caught wind of the practice during a hearing involving Bon shopper Maria York of Seattle. York said she was encouraged by a Bon employee to sign a reaffirmation shortly after she filed for bankruptcy.

Similar probes had already started in other states. But Washington Attorney General Christine Gregoire's office took the lead in the case because the state had the highest number of affected debtors, said Trisha McArdle, an assistant attorney general.

In 20 states, 13,500 debtors were asked to sign reaffirmations that were never approved by a judge. Of those, 3,138 live in Washington. California and Florida had the next-highest number of credit-card customers affected by the process: 2,800 and 2,000, respectively.

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