United States: Sterling Jewelers Hands Over $11 Million To CFPB And NYAG

Employees allegedly signed consumers up for credit without consent

Consumer Financial Protection Bureau

Elizabeth Warren recently announced her candidacy for president, and it is likely that one of her most well-known projects, the Consumer Financial Protection Bureau (CFPB or Bureau), will be a point of pride for her campaign. 

The CFPB regulates "the offering and provision of consumer financial products or services under the federal consumer financial laws" and aims to "educate and empower consumers to make better informed financial decisions." Born in the wake of the financial crisis of the late 2000s, its scope includes consumer-facing products such as mortgages, credit cards and student loans.

Given its habit of collecting and publishing consumer complaints about the financial industry, the CFPB has attracted a bit of negative attention from the financial services industry. The Bureau was swept up into efforts to repeal Dodd-Frank and other financial regulation legislation, and it was even subjected to a contentious public discussion between two acting directors who claimed leadership of the Bureau.

Shine On, You ...

In one recent case, the CFPB has demonstrated its continued willingness to pursue regulation of mainstream businesses that offer in-house financial products.

The Bureau filed a complaint in the U.S. District Court for the Southern District of New York accusing Sterling Jewelers of violations of the Consumer Financial Protection Act and the Truth in Lending Act, as well as fraudulent and deceptive practices under New York state law.

Consumers are likely to recognize the Sterling Jewelers storefront from popular shopping centers and malls – Sterling subsidiaries like Kay Jewelers and Jared operate in 3,600 locations in the United States, the United Kingdom and Canada. In total, the company takes in about $6 billion a year in sales.

The Takeaway

The Bureau claims that the jewelry giant indulged in several prohibited practices, including submitting credit card applications for consumers without their consent, misstating their financing terms and enrolling customers in payment-protection insurance without their consent. In one allegation, Sterling employees allegedly gathered customer information under the pretense that they were signing the customer up for a newsletter and used that information to issue a credit card.

These practices were allegedly encouraged by the company's managers and its training practices. The Bureau claims that the company's training material instructed employees to "offer to clean your Guest's jewelry," as a distraction "while you fill out the credit application."

According to the complaint, Sterling at one point boasted more than 3 million credit accounts, scoring more than $300 million in yearly revenue for these types of practices.

The case settled in mid-January 2019, with the jeweler promising to pay the CFPB $10 million and the New York attorney general's office $1 million. The company will have to hold on to its training materials and other records for five years and make changes to its financing procedures – for instance, informing every credit applicant that they are actually applying for credit.

A Sterling spokesperson denied the allegations and maintained that the company had "used this opportunity to internally reaffirm the transparency and fairness of our credit-related policies." Nevertheless, this enforcement action and settlement demonstrate the Consumer Financial Protection Bureau's broad enforcement power to penalize companies for misleading business practices and the Bureau's ability to enhance consumer protection.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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