Federated Department Stores

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IN THE MATTER OF FEDERATED DEPARTMENT STORES , INC.

CONSENT ORDER, ETC., IN REGARD TO ALLEGED VIOLATION OF SEC. 5 OF THE FEDERAL TRADE COMMISSIO;\ ACT Docket 3893. Complaint, Aug. 20, i999--Decisioll, Aug. 20, 1999 This consent order, among other things, prohibits Federated Department Stores, Inc. , the Ohio-based retail business, from misrepresenting to consumers who have filed petitions for bankruptcy protection: that reaffrmation agreements will be filed in bankruptcy court; that any reaffirmation agreement is legally binding on the consumer; or that any action will be taken to collect any debt that has been legally discharged in bankruptcy proceedings.

Participants For the Commission: Randall Brook, Charles Harwood and Genevieve Fu.

For the respondent: Mark Herrmann, Jones, Day, Reavis & Pogue Washington, D.

COMPLAINT The Federal Trade Commission, having reason to believe that Fcderated Department Stores, Inc. , a corporation ("respondent ), has violated the provisions of the Federal Trade Commission Act, and it appearing to the Commission that this proceeding is in the public interest, alleges:

1. Respondent Federated Department Stores, Inc. , is a Delaware corporation with its principal office or place of business at 7 West Seventh Street, Cincinnati, Ohio. Respondent conducts relevant business through, among other affiliates or subsidiaries, FDS National Bank, The Bon, Inc. , BJoomingda1es, Inc. , Burdines, Inc. Rich' s Department Stores, Inc. , Macy s East, Inc. , Macy s West, Inc. and Stern s Department Stores, Inc.

2. Respondent, through one or more of its affliatcs, is engaged in among other things, the consumer retail business. In the course and conduct of its business, respondent has regularly extended credit (hereinafter "consumer credit accounts ) for the purpose of facilitating consumers ' purchase of respondent's products and services.

FEDERATED DEPARTMENT STORES, INC. 285 284 Complaint 3. The acts and practices ofrespondent alleged in this complaint have been in or affecting commerce, as "commerce" is defined in Section 4 of the Federal Trade Commission Act. THE UNITED STATES BANKRUPTCY CODE 4. Under the United States Bankruptcy Code (II U. c. 1- 1330), a debtor may be granted a discharge in a Chapter 7 bankuptcy proceeding from debts that have arisen prior to the filing of the bankruptcy petition (hereinafter referred to as "pre-petition debts meaning that the debtor is no longer individually liable for these debts. The granting of a discharge "operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, recover or offset any such debt as a personal liability of the debtor, whether or not discharge of such debt is waived. . . . " I I U. c. 524(a)(2). The purpose of the injunction is to protect the debtor s "fresh start" by ensuring that no debt collection efforts are taken against the debtor personally for pre-petition debts. 5. The United States Bankruptcy Code provides, however, that a debtor may agree with a creditor that the creditor can enforce what would otherwise be a discharged debt. In other words, a debtor may reaffirm his or her pre-petition debts, as long as certain requircments are met. These so-called "reaffrmation agreements" are enforceable only if, among other things, the agreement is filed with the bankruptcy court. If the debtor is not represented by an attorney, thc that thebankptcy court must hold a hearing to determine reaffirmation agreement would not impose an undue hardship on the debtor and is in the best interest of the debtor, and must approve the reaffirmation agreement before it becomes enforceable. I I U. 524(c) and (d).

6. If the requirements of II U. C. 524(c) and (d) are not met, an agreement to reaffirm a debt is not binding and a creditor violates the bankruptcy code if it attempts to collect that debt. II U. c. 524(a). VIOLA Tlons OF SECTION 5(a) OF THE FEDERAL TRAE COMMISSION ACT 7. from at least 1990, respondent regularly induced consumers who had filed for protection under Chapter 7 of the United States Bankuptcy Code to enter into agreements reaffrming some or all of their debt arising from pre-petition consumer credit accounts that would otherwise be discharged through bankuptcy proceedings. Complaint 128 FTC. 8. In numerous instances, respondent represented, expressly or by implication, to consumers that their reaffrmation agreements would be fied with the bankruptcy courts, as required by the United States Bankuptcy Code.

9. In truth and in fact, in many cases respondent did not intend to file, and did not file, the reaffirmation agreements with the bankruptcy courts. Therefore, the representation made in paragraph eight was, and is, false or misleading.

10. In numerous instances, respondent represented, expressly or by implication, to consumers that their reaffrmation agreements were legally binding on the consumers and that the consumers were legally required to pay their pre-petition debts. II. In truth and in fact, in many cases, the reaffrmation agreements were not legally binding on the consumers and the consumers were not legally required to pay their pre-petition debts for reasons including, but not necessarily limited to, the following: (a) respondent did not file the reaffirmation agreements with the bankuptcy courts; or (b) respondent filed the reaffirmation agreements, but the agreements were then not approved by the bankuptcy courts. Therefore, the representation made in paragraph ten was, and , false or misleading.

12. In the course and conduct of its business, respondent regularly collected from consumers debts that had been legally discharged in bankuptcy proceedings and that respondent was not permitted by law to collect. Respondent' s actions have caused or were likely to cause substantial injury to consumers that is not offset by any countervailing benefits and is not reasonably avoidable by these consumers. 15 c. 45(n). Therefore, respondent's collection of debts that they were not pcrmitted by law to collect was, and is, unfair. 13. The acts and practices of respondent as alleged in this complaint constitute unfair or deceptive acts or practices in or affecting commerce in violation of Section 5(a) of the Federal Trade Commission Act.

FEDERATED DEPARTMENT STORES, INC. 287 284 Decision and Order DECISION AND ORDER The Federal Trade Commission having initiated an investigation of certain acts and practices of the respondent named in the caption hcreof, and the respondent having been furnished thereafter with a copy of a draft of complaint which the Seattle Regional Office proposcd to present to the Commission for its consideration and which, if issued by the Commission, would charge respondent with violations of the Federal Trade Commission Act; and The respondent, its attorney, and counsel for the Commission having thereafter executed an agreement containing a consent order an admission by the respondent of all the jurisdictional facts set forth in the aforcsaid draft of complaint, a statcmcnt that the signing of said agreement is for settlement purposes only and does not constitute an admission by respondent that the law has been violated as allegcd in such complaint, and waivcrs and other provisions as required by the Commission s Rules; and The Commission having thereafter considered the matter and having determined that it had reason tq believe that the respondent have violated thc said Act, and that complaint should issue stating its charges in that respect, and having thereupon accepted the executed consent agreement and placed such agreement on the public record for a period of sixty (60) days, now in further conformity with the proccdure prescribed in Section 2.34 of its Rules, the Commission hereby issues its complaint, makes the following jurisdictional findings and enters the following order:

I. Respondent Federated Department Stores, Inc., is a Delaware corporation with its principal offce or place of business at 7 West Seventh Street, Cincinnati, Ohio. Respondent conducts relevant business through, among other affliates or subsidiaries, FDS National Bank, The Bon, Inc., Bloomingdales, Inc., Burdines, Inc. Rich' s Dcpartment Stores, Inc., Macy s East, Inc. , Macy s West, Inc. and Stern s Department Stores, Inc.

2. The acts and practices of the respondent alleged in this complaint have been in or affecting commerce, as "commerce " is defined in thc Federal Trade Commission Act. 3. Thc Federal Trade Commission has jurisdiction of the subject matter of this proceeding and of the respondent, and thc proceeding is in the public interest.

Decision and Order 128 FTC. ORDER DEFINITOCiS For purposes of this order, the following definitions shall apply: I. Unless otherwise specified respondent shall mean Federated Department Stores, Inc., a corporation, its successors and assigns, and its officers, agents, representatives, and employees. 2. " Debt" shall mean any obligation or alleged obligation of a consumer to pay money arising out of any transaction. 3. "ReajfrmationAgreement shall mean any agreement between a creditor and a debtor in bankuptcy whereby a debt that is otherwise dischargeable with respect to the personal liability of the debtor is reaffirmed by the debtor.

4. "Commerce shall mean as defined in Section 4 ofthe Federal Trade Commission Act, 15 U. C. 44.

It is ordered That respondent, directly or through any corporation, subsidiary, division, or other device, in connection with the collection of any debt, shall not:

A. Misrepresent, expressly or by implication, to consumers who have filed petitions for bankptcy protection under the United States Bankuptcy Code that reaffirmation agreements will be filed in bankruptcy court;

B. Misrepresent, expressly or by implication, to consumers who have filed petitions for bankuptcy protection under the United States Bankuptcy Code that any reaffirmation agreement is legally binding on the consumer; or C. Take any action to collect any debt (including any interest, fee charge, or expense incidental to the principal obligation) that has been legally discharged in bankruptcy proceedings and that respondent is not permitted by law to collect.

II.

It is further ordered That respondent, directly or through any corporation, subsidiary, division, or other device, shall not make any material misrepresentation, expressly or by implication, in the collection of any debt subject to a pending bankptcy proceeding. FEDERATED DEPARTMENT STORES me. 289 284 Decision and Order It is further ordered That respondent, and its successors and assigns, for five (5) years after the date of issuance of this order, shall maintain and upon request make available to the Federal Trade Commission business records demonstrating their compliance with the terms and provisions of this order, including but not limited to all reaffrmation agreements signed by consumers and records sufficient to show that the reaffirmation agreements were fied in bankuptcy courts and were subsequently approved by bankuptcy courts as part of the underlying bankruptcy proceedings, if required by the United States Bankuptcy Code.

IV.

It is further ordered That respondent, and its successors and assigns, for five (5) years after the date of issuance of this order, shall deliver a copy of this order to all current and future principals offcers, directors, managerial employees, and bankruptcy court representatives having debt collection responsibilities with respect to the subject matter of this order (collectively, "bankruptcy personnel" and shall secure from each of these persons a signed and dated statement acknowledging receipt of the order. Respondent shall, for five (5) years after each of these statements acknowledging receipt of the order is signed and dated, maintain and upon request make available to the Federal Trade Commission for inspection and copying the statements. Respondent shall deliver this order to current bankuptcy personnel within thirty (30) days after the date of service of this order, and to future bankptcy personnel within ninety (90) days after the person assumes a position as bankruptcy personnel. It isfurther ordered That respondent shall notify the Commission at least thirty (30) days prior to any change in the corporation in each case that may affect compliance obligations arising under this order including but not limited to a dissolution, assignment, sale, merger or other action that would result in the emergence of a successor corporation; the creation or dissolution of a subsidiary, parent, or affiliate that engages in any acts or practices subject to this order; the proposed filing of a bankuptcy petition; or a change in the corporate name or address. Provided, however, that, with respect to any Decision and Order 128 FTC. proposed change in the corporation about which respondent learns Jess than thirty (30) days prior to the date the action is to take place respondent shall notify the Commission as soon as is practicable after obtaining this knowledge. All notices required by this Part shall be sent by certified mail to the Associate Director, Division of Enforcement, Bureau of Consumer Protection, Federal Trade Commission, Washington, D.

VI.

It is further ordered That respondent shall, within sixty (60) days after the date of service of this order, and at such other times as the Federal Trade Commission may require, file with the Commission a report, in writing, setting forth in detail the manner and form in which it has complied with this order.

VII.

This order will terminate on August 20, 2019, or twenty (20) years from the most recent date that the United States or the Federal Trade Commission fies a complaint (with or without an accompanying consent decree) in federal court alleging any violation of the order, whichever comes later; provided, however, that the filing of the complaint wil not affect the duration of: A. Any Part in this order that terminates in less than twenty (20) years;

B. This order s application to any respondent that is not named as a defendant in the complaint; and C. This order if the complaint is filed after the order has terminated pursuant to this Part.

Provided, further, that ifthe complaint is dismissed or a federal court rules that the respondent did not violate any provision of the order and the dismissal or ruling is either not appealed or upheld on appeal then the order will terminate according to this Part as though the complaint had never been filed, except that the order will not terminate between the date the complaint is filed and the later of the deadline for appealing the dismissal or ruling and the date the dismissal or ruling is upheld on appeal.

PROVIDENT COMPANIES me. ET AL. 291 291 Complaint