Mccrory Corporation

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IN THE MATTER OF McCRORY CORPORATION, ET AL.

CONSENT ORDER, ETC., IN REGARD TO ALLEGED VIOLATION OF' THE FEDERAL TRADE COMMISSION ACT Docket C-'2676. Complaint, June 1975-De6,qion, Jll:ne, 1975 Consent order requiring a New York City parent and its department store operation Lerner Stores Corporation, among other things to provide charge customers having credit balances with periodic statements settng forth credit balances no less than three times in a six-month period following creation of the balance; to notify charge account customers with credit balances of their right to a cash rf!fund of the balance; to stop deleting credit balances of $1.00 or more from a customer s account before making a cash refund or an offsetting purchase has been made; to automatically refund amounts of unclaimcd credit balances after a period of account inactivity; and to -refund all unclaimed credit balances more than $1.00 created since .Tune 30, 1972.

Appeamn.ces For the Commission: Alan D. Rejjin, J?Jtin Dingfelder and Howard F. Daniel.

For the respondents: Max Wild, Rubin, Wachtel, Baum Le1Jin New York, N.

COMPLAINT Pursuant to the provisions of the Federdl Trdde Commssion Act and by virue of the authority vested in it by said Act, the Federa Trdde Commission, having reason to believe that McCrory Corpration, a corporation, and its wholly-owned subsidiary, Lerner Stores Corprdtion, a corporation" hereinafter sometimes referred to as respondents have violated the provisions of said Act, and it appearg to the Commission that a proceeding by it in respect thereof would be in the public interest, hereby issues its complaint stating its charges in that respect as follows:

Complaint 80 F.

PARAGRAPH 1. Respondent McCrory Corporation is a corporation organized, existing and doing business under and by virtue of the laws , of th State of Delaware. Its principal offce and place of business is located at 860 Park Ave., New York, N.Y. Respondent McCrory Corporation has the power to elect the Board of Directors of Lerner Stores Corporation.

Respondent Lerner Stores Corporation is a corporation organized existing and doing business under and by viue of tbe laws of the State of Marland. Its principal offce and place of business is located at 460 W. 8; rd St., New York, N.

PAR. 2. Respondent Lerner Stores Corporation operates and controls a number of retail clothing stores in 89 States, Puerto ,Rico and the Virgin Islands.

PAR. 8. Respondents sell and distribute merchandise in commerce by operating and controllng retail clothing stores in a number of States and by causing merchandise to be shipped from their warehouses and from the places of business of their varous suppliers to their warehouses and retail clothing stores for distribution to and purchase by the general public located in States other than those from which such shipments originate. By these and other acts and practices respondents maintain, and at- all times mentioned herein have maintained, a substantial coure of trdde in merchandise and services in commerce, as "commerce" is defined in the Federal Trade Commssion Act.

PAR. 4. In the ordinary coure and conduct of their aforesaid business, respondents permt customers of Lerner Stores Corporation who qualify for credit to charge purchases in accordance with the term of charge account agreements executed between .said customers and respondents. On occasion a customer s charge account balance represents an amount of money owed to the customer by respondents, rather than an amount of money owed to respondents by the customer. This credit balance is the result of, among other thigs, overpayments by the customer or credits for returned merchandise. PAR. 5. Respondent Lerner Stores Corpration customaly provides each customer having a charge account credit balance a montWy statement setting forth the amount of the credit balance, at the end of the billng cycle durng which the credit balance is created and at the end of each subsequent billing cycle durng which the credit balance has not been cleared from the customer s account and a transaction on the customer's account occurs. Respondent Lerner Stores Corporation furshes a charge account customer with one additional montWy statement setting forth his credit balance at the end of the first billing McCRORY CORP., ~:T AL. 1111 1109 Complaint cycle during which the customer transacts no business on his charge account after creation of his credit balance. I f a customer with a credit balance on his charge account does not specifically request that respondent Lerner Stores Corporation pay hjm the ,amount of his credit balance but purchases merchandise or servces on his charge account, before respondent Lerner Stores Corporation refunds the amount of his credit balance, the amount of the credit balance is applied to reduce or eliminate the customer's obligation created by the purchase of merchandise or services. For a substantial period of time, if the customer did not request a refund in cash of the amount of the credit balance or make a purchase within a period of time allowed by Lerner Stores Corpration for activity to occur on the customer's account, Lerner Stores Corporation through bookkeeping entries, cleared the amount of the credit balance from the customer s charge account. No cash payment to the customer was made at the time of the clearng of his credit balance from his charge account. Subsequent periodic statements were not mailed until a later purchase was made. The outstanding credit balance that was previously reflected on a periodic billing statement was not applied to any purchase occulTng after the credit balance had been cleared from the customer s account.

At no time was the customer informed of his right to receive a cash refund nor did Lerner Stores Corporation voluntaly refund cash representing outstanding credit balances Without a specific customer request. Respondent Lerner Stores Corpration, through such acts and practices eliminated substantial doHar amounts of credit balances as aforesaid from customer accounts in a substantial number of instances- PAR. 6. By failing to notify customers with charge account credit balances that they had the right to request and receive cash payment of the amounts of their credit balances; by failig to fursh customers, at the end of each and every billng cycle durg which credit balances remained outstamling, montWy statements reflecting the amount of their credit balances; by deleting outstandig credit balances from accounts without refunding such amounts and by providing biling statements for subsequent purchases which did not reflect such outstanding credit balances, Lerner Stores Corpration caused a substantial number of their customers to be deprived of substatial sums of money rightfully their. Therefore, the acts and practices described in Paragrph Five above were and are unair. PAR. 7. The acts and practices of Lerner Stores Corpration set forth in Paragraphs Five and Six above were to the prejudice and injur of the public and constitute unfair acts and practices and unfai methods 1112 FEDERAL TJ(AD~ COMMISSION ImCISIONS Decision and Order R5 F.

of competition in commerce in violation of Section 5 of the Federal Trade Commission Act.

DECISION AND ORDER The Commission having heretofore determined to issue its complaint charging the respondents named in the caption hereto with violation of the Federal Trade Commission Act, and the respondents baving been served with notice of said determination and with a copy of the complaint tbe Commission intended to issue, together with a proposed form of order; and The respondents and counsel for the Commssion having thereafter executed an agreement containing a consent order, and admission by the respondents of all the jurisdictional facts set fortb in the complaint to issue herein, a statement that the signng of said agreement is for settement purposes only and does not constitute an admission by respondents that the law has been violatcd as alleged in such complaint and waivers and other provisions as required by the Commission rules; and The Commission having considered the agreement and having provisionally accepted same, and the agreement containing consent order having thereupon been placed on the public record for a period of sixty (60) days, and having duly considered the comments fied thereafter pursuant to Section 2.84(b) of its rules, now in further conformty with the procedures prescribed in Section 2.84(b) of its rules, the Commssion hereby issues its complaint in the form contemplated by said agreement, makes the following jursdictional findings, and enters the following order;

1. Respondent McCrory Corporation is a corporation organized existing and doing business under and by virtue of the laws of the State of Delaware, with its principal place of business located at 860 South Park Ave., New York, N.

2. The Federal Trade Commission has jurisdiction of the subject matter of this proceeding and of the respondents, and the proceeding is in the public interest.

QIUTER It is ordered That respondent McCrory Corporation, a corporation aand its wholly-owned subsidiar, Lerner Stores Corporation, corporation, (hereinafter collectively referred to as respondent), their successors and assigns and their representatives, agents and employees, directly or through any corporation, subsidiar, division or other device, in connection with the handling of credit balances on retail , , McCRORY CORP. T AI. Ilia 1109 Decision and Order consumer open end credit accounts or other retail consumer charge accounts (including, but not necessarily limited to thirty (80) day charge accounts) created incident to the business of selling consumer merchandise and servces at retail in the United States or any of its terrtories or possessions in commerce, as "conuerce" is defined in the Federal Trade Commission Act, do forthwith cease and desist from: 1. F'ailing to provide each charge account customer having a credit balance created after the date of ,mtry of this order with a periodic statement setting forth such credit balance, no fewer than three times during the six month period following the creation of the credit balance. 2. Failing to notify each charge account customer having a credit balance created after the date of entry of this order of the right to request and receive a refund in the amount of such credit balance, such notice to be accomplished by a clear and conspicuous disclosure on or enclosed with each periodic statement to be accompanied by a retur envelope; such disclosure shall be consistent with, but need not be the same as, the following:

The Credit Balance shown on (this) (the enclosed) statement represents money we owe you. Therefore:

NO PAYMENT IS REQUIRED You may apply this balance to future purchases, or you may obtain a refund by mail by presenting your statement at our store or by returning (the top half of) your statement in the enclosed envelope. If you do not charge against this credit or request a refund, a cbeck will be mailed to you automatically after six months, except a credit balance of one dollar ($1.00) or less wil not be refunded unless specifically requested, and it wil not be credited aganst future purchases after this period.

Such disclosures need not be made by any store in the event it is that store s policy to refund automatically and without request all credit balances regardless of amount. In such cases tbe following disclosures must be made:

For refund contact (ourl rany! store or we wil send check in 6 for smaller numbers months.

8. Writing off or deleting any credit balance of more than one dollar ($1.00) created after the date of entry of this order from a customer's account before respondent has made a refund or the customer bas made a fully offsetting purchase, unless such credit balance is not in fact owed to the customer, or unless respondent has complied with tbe requirements of Paragraph B below.

4. Failing to refund to each charge account customer with a credit balance of more than one dollar ($1.00) created after the date of entry of this order the full amount of said credit balance no later than thiy- 5Rg- 0 - '/R - 71 Decision and Order 85 Ic:r. one (81) days from the end of the sixth consecutive biling cycle during which the credit balance exists and the customer neither transacts any business . oil his account nor requests a - refund, unless such credit balance is not in fact owed to the customer. A. It is further ordered That with respect to each credit balance owed a customer in the amount of more than one dollar ($1.00) which was created at any time since ,June 30, J 972, and which has not been refunded to the customer as of the date of entry of the order respondent shall refund to each such customer the full amount of such credit balance, unless such credit balance is not owed to the customer or the customer makes a fully offsetting purchase within the period for compliance herewith; Provided, huwever That nothing contained herein shall prevent respondent from making such refund by giving a credit certifcate(s) in the full amount of the credit balance which shall be redeemable, at the customer's option, in merchandise or cash. Such a certifcate(s), or an accompanying notice attached to the certifcate shall clearly and conspicuously disclose that it is redeemable for cash if the customer so requests in person or if the customer returns the certifcate(s) by mail with a request for cash redemption. Respondent shall comply with the provisions of this paragraph no later than three (:1) months after the date of entry of this order, and the report required by Paragraph F of this order shan address itself specifically to the steps taken to comply with this paragraph.

B. It is jitrthcr ordered That each refund shall be given to the customer by mailing a check (or a credit certifcate(s) in the case of credit balances existing prior to the date of entry of this order) payable to the order of tbe customer at the last known address shown in respondent' s records for said customer. Each period statement sent pursuant to the terms of this order shall be mailed to tbe customer at the last known address in respondent's records. In the event that any such statement or check (or credit certifcate) is returned to respondent with a notification to the effect that the addressee is not located at the address to which it was sent, respondent shall make one remailing of the check (or credit certifcate) or statement with an address correction request to the Post Office. If the check (or certificate) or statement which has been remailed is returned to respondent and represents an amount of twenty-five dollars ($25.00) or more, the respondent shall employ one of the following procedures: contacting a credit bureau; employment of an independent contractor eng-dged in the business of skip-locating; contacting the customer's last known employer as shown in respondent's records; or reinstating the full amount of the credit balance on the customer's account to be retained for one year from the date on which the remailed check or statement was returned so that lnc\.J f\VI\.I 1.\)1", , 1',1 l\L. 111:) 1109 Decision and Order offsetting purchases can he made. If a remailed check (or credit certificate) or statement reflecting a credit balance of less than twentyfive dollars ($25.00) is returned, n,spondent shall not be required to take any of the additional actions set forth in tbe preceding sentence. . Thereafte,: respondent shall be relieved of any furher obligation to send any additional notice and/or any refund with respect to the credit balance in question; Pr01nded, hae' uer That in the event said customer should subsequently request a refund of any such credit balance owed the customer, respondent shall promptly make such refund. C. It i8 further ordered That if a customer requests, in person or by mail, a refund of a credit balance in any amount whicb had been reflected at any time on such customer's account, respondent shall within thirty (80) days of receipt of such request, either refund the entire amount requested, if owed, or furnish the customer with a written explanation, with supporting documentation when available, of the reason(s) for refusing to refund the amount requested. D. It i8 further ordered That a credit balance shall be deemed to be created at the end of the biling cycle in which the credit balance is litt recorded on a customer s account and at the cnd of the biling cycle in which the recorded amount of an existing credit balance is changed due to a customer s use of the account. Whenever the recorded amount of an existing credit balance is changed, respondent's obligations under this order with respect to the credit balance existing prior to such change shall automatically be replaced by its obligations under this order with respect to the new credit balance created by said change. E. It is further ordered That, notwithstanding the foregoing, the provisions of this order shall not be applicable to credit balances on accounts administered by paries other than respondent or to transactions arising out of layaway plans or installment saes contracts. within sixty (60) F. It is furthir ordered That respondent shall, days after the entry of this order, fie with the Commission a report in wrting setting forth in detail the manner and form in which it has complied with this order.

G. It is furthir ordered That respondent notify the Commission at least thirty (80) days prior to any proposed change in the corporate respondent which may affect compliance obligations arising out of the order such as dissolution, assignent or sale resulting in the emergence of a successor corporation, the creation or dissolution of subsidiaries or . any other change in the corpration.

H. It is further ordered That respondent shall forthwith distribute a copy of this order to each of its retail operating divisions. 1116 EDERAL TRADE COMMISSION DECISIONS Complaint HG F.