Kay Jewelers Parent Issues Unauthorized Credit Cards, Pays $11m Fine Posted by Association of Vermont Credit Unions on 1:15 PM

Sterling Jewelers, Inc., will pay $10 million to the Consumer Financial Protection Bureau (CFPB) and $1 million to the state of New York to settle claims that it violated the Consumer Financial Protection Act (CFPA) and Truth in Lending Act (TILA).

CFPB and New York Attorney General investigations revealed that

• employees were incented to sign customers up for in-store credit cards by setting sign-up quotas and linking the number of customers signing up to employees’ performance reviews and compensation
• customers were misled into thinking they were signing up for a rewards program but the the information they provided was used to file credit card applications; consumers didn’t know they had signed up for a credit card until they received a credit report inquiry or the card showed up in their mailboxes.
• in situations where customers knew they were applying for credit cards, employees misrepresented terms by telling customers they were being enrolled in “no interest” promotional financing plans when, in fact, there were monthly financing fees.
• consumers were enrolled in credit insurance connected to their in-store credit cards without their knowledge or consent.

The jeweler took a deep dive into its credit practices back in 2016 after analysts began commenting on the amount of subprime debt weighing heavy on its books, meaning the company might have been lending to too many consumers with low credit scores.  The company announced plans to outsource its credit portfolio in May 2017, selling $1 billion worth of prime-only accounts to Alliance Data System Corp, and completed its outsourcing in July 2018.  Sterling Jewelers operates more than 1,500 jewelry stores in the U.S., including retailers such as Kay Jewelers.