Sterling Jewelers, Inc.

Documents in this case

• Complaint · 18 p.
• Stipulation · 15 p.

Case summary

JAN 16, 2019

The Consumer Financial Protection

Bureau (Bureau) and the People of the State of New York today settled claims

against Sterling Jewelers Inc.

The Bureau’s and the State’s

parallel investigations found that Sterling violated the Consumer Financial

Protection Act of 2010 by opening store credit-card accounts without customer

consent; enrolling customers in payment-protection insurance without their

consent; and misrepresenting to consumers the financing terms associated with

the credit-card accounts. The Bureau also found that Sterling violated the

Truth in Lending Act by signing customers up for credit-card accounts without

having received an oral or written request or application from them. The State

of New York found that Sterling violated several provisions of state law.

Under the settlement, Sterling

will pay a $10 million civil money penalty to the Bureau and a $1 million civil

money penalty to the State of New York. Sterling has also agreed to injunctive

relief designed to prevent the continuation of the claimed illegal conduct.

Complaint

PDF of this document (18 pages)

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IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK

Bureau of Consumer Financial Protection and the People of the State of New York, by Letitia James, Attorney General for the State of New York,

Plaintiffs, v.

Sterling Jewelers Inc.,

Case No.

Defendant.

COMPLAINT

The Bureau of Consumer Financial Protection (Bureau) and the People of the State of New York (State of New York), by its Attorney General (NYAG), bring this action against Sterling Jewelers Inc. (Sterling) and allege as follows: INTRODUCTION 1.

Sterling operates roughly 1,500 jewelry stores in malls and off-mall locations in all 50 states, including roughly 130 stores in New York State. Sterling does business as Kay Jewelers, Jared The Galleria of Jewelry, and a variety of regional brands, including JB Robinson Jewelers, Marks & Morgan Jewelers, Belden Jewelers, Goodman Jewelers, LeRoy’s Jewelers, Osterman Jewelers, Rogers Jewelers, Shaw’s Jewelers, and Weisfield Jewelers.

2.

Sterling is a wholly owned subsidiary of Signet Jewelers Limited (Signet). Signet is the largest specialty-jewelry retailer in the United States, United Kingdom, and Canada. Sterling entities account for more than 60% of Signet’s total annual sales of about $6.4 billion.

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3.

Since 1990, and until at least October 2017, Sterling offered in-house credit financing directly to consumers to make purchases in its stores. 4.

Consumers who visited Sterling’s stores were typically encouraged by Sterling’s salespeople to finance their purchases. Roughly 60% of Sterling’s total sales are financed by consumers using Sterling’s in-house credit. From 2014 through 2017, Sterling had over three million open credit accounts each year, and Sterling generated more than $300 million in net revenue each year from such accounts. 5.

Sterling’s company culture, reflected in its training materials and salesperformance standards, pressures employees to enroll consumers in company credit cards and to sell its financing plans and payment-protection insurance. 6.

The Bureau and the State of New York bring this action under §§ 1031, 1036(a)(1), 1054, and 1055 of the Consumer Financial Protection Act of 2010 (CFPA), 12 U.S.C. §§ 5531, 5536(a)(1), 5564, 5565, the Truth in Lending Act (TILA), 15 U.S.C. § 1601 et seq., and its implementing regulation, Regulation Z, 12 C.F.R. part 1026, in connection with Sterling’s credit-financing practices, including (1) submitting credit applications for consumers and causing credit cards to be issued without consumers’ knowledge or consent; (2) misrepresenting credit-financing terms and conditions; and (3) enrolling consumers in payment-protection insurance without their knowledge or consent. The State of New York also brings this action under New York Executive Law (Exec. Law) § 63(12) and New York General Business Law (GBL) § 349. Case 1:19-cv-00448 Document 1 Filed 01/16/19 Page 2 of 18

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JURISDICTION AND VENUE

7.

This Court has subject-matter jurisdiction because this action is brought under “Federal consumer financial law,” 12 U.S.C. § 5565(a)(1), presents a federal question, 28 U.S.C. § 1331, and is brought by an agency of the United States, 28 U.S.C. § 1345. This Court has supplemental jurisdiction over the State of New York’s state-law claims because they are so related to the federal claims that they form part of the same case or controversy. 28 U.S.C. § 1367(a).

8.

Venue is proper in this district because Sterling conducts business in this district. 12 U.S.C. § 5564(f).

PARTIES 9.

The Bureau is an agency of the United States charged with regulating the offering and provision of consumer-financial products and services under “Federal consumer financial laws.” 12 U.S.C. § 5491(a). The Bureau has independent litigating authority to enforce “Federal consumer financial laws.” See 12 U.S.C. § 5564(a)–(b). 10.

The State of New York, by its Attorney General, is authorized to take action to enjoin repeated and persistent fraudulent or illegal conduct under Exec. Law § 63(12) and deceptive business practices under GBL § 349. The NYAG is also authorized to initiate civil actions in federal district court to enforce provisions of the CFPA. See 12 U.S.C. § 5552(a)(1).

11.

Sterling, an Ohio corporation, maintains its headquarters at 375 Ghent Road, Akron, Ohio 44333. Sterling operates jewelry stores and offers credit products to consumers in all 50 states, including in the State of New York. Sterling engages in Case 1:19-cv-00448 Document 1 Filed 01/16/19 Page 3 of 18

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offering a “consumer financial product or service” under the CFPA. 12 U.S.C. § 5481(5)(A), (15)(A)(i). Sterling is therefore a “covered person” under the CFPA. 12 U.S.C. § 5481(6).

FACTS 12.

Sterling offers consumers a credit card that provides a line of credit that can be used only at Sterling’s stores; it is not a general-purpose credit card. 13.

Signing up consumers for Sterling credit cards built brand loyalty and caused consumers to be more likely to purchase goods at Sterling’s stores. According to one of its recent annual reports, “[t]he lifetime value of a customer obtained through the in-house credit program is estimated to be 3.5 times that of a customer not obtained through the in-house credit program.”

14.

In connection with offering its credit products, Sterling’s salespeople misrepresented financing terms or omitted information necessary for consumers to understand the credit offer.

15.

Store employees failed to inform consumers that they were applying for credit and misstated the reasons for requesting consumers’ personal information. 16.

In many instances, Sterling’s sales representatives offered to check for a consumer whether the consumer qualified for a line of credit. In fact, the sales representative actually submitted a credit application for the consumer. 17.

In many instances, Sterling’s sales representatives told consumers when they applied for credit that there would be no “hard inquiry” or negative impact on Case 1:19-cv-00448 Document 1 Filed 01/16/19 Page 4 of 18

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consumers’ credit reports because Sterling offered “in-house” financing. In fact, for each application for credit from Sterling, Sterling made a credit-report inquiry. 18.

In many instances, Sterling’s sales representatives induced consumers to provide their personal information by purporting to sign up consumers for a store “rewards card,” loyalty program, newsletter, or mailing list. In fact, the sales representatives used consumers’ personal information to submit a credit application. 19.

In other instances, Sterling’s sales representatives informed consumers that they were collecting personal information for a “survey” or to place a custom order for the consumer when, in fact, the information was used to complete a credit application.

20.

Many of Sterling’s store managers and district managers encouraged deceptive tactics to induce consumers to apply for a credit card, and many turned a blind eye to such conduct.

21.

For example, Sterling’s store managers and district managers told sales representatives not to use the term “credit card” but instead to refer to the credit card as a store card or a “Kay card.”

22.

Sterling’s training materials instructed employees to offer credit to every customer who visited a store, and they included tips that enabled salespeople to distract the consumer, such as “offer to clean your Guest’s jewelry while you fill out the credit application,” and “completing the in-house credit account application for the Guest on the [in-store] tablet allows him/her to focus on his/her reason for visiting the Store, and not on completing paperwork.”

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23.

Sterling’s credit-card applications have been in both paper and electronic formats.

24.

Sterling’s training materials instruct employees to “[a]lways fill out the paper credit application or type the credit application into the Graphical POS for the Guest.”

25.

Because the credit application usually was completed not by the consumer, but by a salesperson on paper or on the employee-operated electronic tablet, many consumers never saw their credit-card application or any applicable terms and conditions.

26.

In many instances, consumers were never given any written or oral credit disclosures or any indication they were applying for credit. Sometimes, consumers were given inaccurate oral disclosures about the terms of the credit. 27.

Sterling’s employees experienced pressure to obtain and submit completed credit-card applications.

28.

Employees were rated, retained, and compensated based on their ability to meet certain performance standards, including for obtaining credit-card applications. 29.

Sterling’s companywide, formal performance standards required employees at stores located in shopping malls to complete “one credit card application a day.” Employees at standalone stores were required to obtain one credit application every two days.

30.

In some instances, employees who failed to meet the company’s creditapplication quota received counseling and additional training from store managers; Case 1:19-cv-00448 Document 1 Filed 01/16/19 Page 6 of 18

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other employees were terminated for failing to meet credit-application performance standards.

31.

Bonuses for certain Sterling’s managers were determined, in part, based on the number of credit-card applications obtained by employees the managers supervised.

32.

From 2013 through 2017, over one million Sterling credit-card accounts were opened based on applications completed and submitted in Sterling’s stores and then never used by the consumers who had supposedly applied for them. 33.

When consumers knew they were applying for credit, Sterling’s employees sometimes misled consumers about the type of financing for which they were applying, as well as the applicable terms of the financing, such as the interest rate and monthly payment amount.

34.

In such instances, consumers applied for credit from Sterling after employees presented them with certain terms—a low monthly payment or interest-free period—that were not honored. These consumers received credit cards and billing statements that did not match the representations made by the salespeople at the time consumers applied for credit.

35.

Sterling’s employees offered, and were trained to promote, interest-free financing.

36.

In many instances, consumers were offered interest-free financing in connection with a purchase, only to find out upon receiving a billing statement that they were enrolled in a regular, interest-bearing credit plan. Case 1:19-cv-00448 Document 1 Filed 01/16/19 Page 7 of 18

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37.

Sterling’s stores generally offered 6-, 12-, and 18-month interest-free promotional financing to customers, provided the customers met a minimum purchase amount and made a 20% down payment at the time of purchase. 38.

In many cases, Sterling’s employees offered customers promotional financing but then determined that the customers could not make a down payment at the time of purchase and thus did not meet the eligibility requirements for interest-free financing. In these instances, Sterling’s employees instead enrolled the consumers in a regular interest-bearing financing plan without disclosing this to the consumer. Consumers often did not learn of this until they noticed it on a billing statement weeks or months later.

39.

In other cases, consumers were quoted a monthly payment amount based on interest-free financing and were later quoted a lower monthly payment without Sterling’s employees explaining that the lower monthly payment was not available with interest-free financing and instead required extending the repayment period on a regular, interest-bearing plan. In these instances, Sterling’s employees did not tell consumers that they were getting regular financing, rather than promotional financing, and they did not disclose the changed financing terms to consumers at the time of purchase or obtaining credit.

40.

Until roughly June 2017, Sterling offered to its credit customers Payment Protection Plan (PPP) insurance through a third-party insurance provider. PPP insurance was offered at the point-of-sale in 33 states, including the State of New York. Case 1:19-cv-00448 Document 1 Filed 01/16/19 Page 8 of 18

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Although a third party administered PPP, Sterling was responsible for the marketing and sale of PPP.

41.

PPP generated significant revenues for Sterling. In fiscal year 2016, for example, PPP sales generated more than $60 million in revenues. 42.

PPP insurance was an optional credit-insurance program offered to Sterling credit customers to help them make their monthly payments in the event of death, disability, loss of property due to burglary or perils, or loss of work. The PPP terms varied depending on the customer’s state of residence. 43.

PPP insurance was directly tied to the consumer’s credit card because its function was to make monthly credit-card payments if the consumer met certain criteria. PPP insurance was not offered to customers, and could not exist, independent of the credit card.

44.

In states where PPP insurance was offered, Sterling’s employees were required to enroll customers in it to meet company performance standards. 45.

Sterling’s employees enrolled some consumers in PPP insurance without their knowledge or consent. In many instances, consumers were asked to “sign here” or select “Yes” on an electronic “PIN-pad” in order to hold an item, process an order, or verify their information when, in fact, their signature was used to enroll them in PPP. 46.

Customers enrolled in PPP insurance at the store by electronically consenting to coverage on the PIN-pad they used to complete their purchase transaction.

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47.

The cost of PPP insurance varied depending on the type of coverage and state in which it was offered, but it averaged around $0.97 per $100 purchase or balance amount. This amount was charged monthly to the consumer’s credit-card billing statement. In New York State, the cost of PPP insurance was $0.224 per $100 of account balance per month.

48.

In many instances, PPP insurance was added to consumers’ accounts or purchases without their knowledge or consent.

49.

Consumers did not realize that they were electing to purchase credit insurance on the PIN-pad, often noting that they assumed they were signing in connection with the purchase, special order, or, if they were aware of it, the credit application, which occurred at the same time and as part of the same transaction as PPP enrollment.

50.

Consumers often only discovered that they were enrolled in, and were being charged for, PPP insurance after noticing it on their billing statements. 51.

In some instances, Sterling’s employees told consumers about the PPP insurance and asked them to sign up so that the employees could meet their quotas— while promising the consumers that the employees would cancel the insurance before the consumers were charged. But the PPP insurance was not canceled and consumers were charged for a product they did not want.

52.

In other instances, Sterling’s employees told consumers that they were signing up to receive an informational packet to gauge their interest in PPP insurance; in fact, and unbeknownst to them, consumers were purchasing the product. Case 1:19-cv-00448 Document 1 Filed 01/16/19 Page 10 of 18

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CAUSES OF ACTION

Count I—Deception under the CFPA Regarding Credit-Card Applications, Asserted by the Bureau and the State of New York

53.

The allegations in paragraphs 1-52 are incorporated by reference. 54.

An act or practice is deceptive if there is a representation or omission of information that misleads or is likely to mislead a consumer; the consumer’s interpretation of the act or practice is reasonable under the circumstances; and the misleading act or practice is material. 12 U.S.C. §§ 5531(a), 5536(a)(1)(B). 55.

In many instances, Sterling’s employees represented to consumers that they were completing a survey, enrolling in a rewards program, or checking to see how much they would qualify to spend in the store when, in fact, the consumers were completing credit-card applications or Sterling’s employees were completing applications for consumers without their knowledge or consent. 56.

These misrepresentations were likely to mislead consumers acting reasonably under the circumstances because consumers believed they were providing personal information for other purposes and consumers relied on store employees’ representations that consumers were doing something other than applying for a credit card.

57.

These misrepresentations were material because many consumers likely would not have provided their personal information and signature if they knew they were applying for credit, given that they may not have wanted an extension of credit or the potential negative impact it could have on their credit file or ability to obtain credit in the future.

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58.

Furthermore, a reasonable consumer would want to know that his personal information and signature would be used to apply for a credit-card account at Sterling’s stores.

59.

The fact that the credit-card application disclosed the actual nature of the transaction does not correct the misrepresentations made to consumers. 60.

Sterling’s statements or omissions to consumers regarding credit applications were false or misleading and constituted deceptive acts and practices, in violation of the CFPA. 12 U.S.C. §§ 5531(a), 5536(a)(1)(B). Count II—Unauthorized Issuance of Credit Cards under TILA and Regulation Z, Asserted by the Bureau

61.

The allegations in paragraphs 1-52 are incorporated by reference. 62.

TILA provides that “[n]o credit card shall be issued except in response to a request or application therefor.” 15 U.S.C. § 1642. 63.

Regulation Z states that no credit card may be issued to any person except in response to an oral or written request or application for the card. 12 C.F.R. § 1026.12(a)(1).

64.

Sterling issued credit cards to consumers without their knowledge or consent and not in response to an oral or written request for the card. 65.

Therefore, Sterling has violated TILA and Regulation Z. 15 U.S.C. § 1642; 12 C.F.R. § 1026.12(a)(1).

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Count III – Pursuant to New York Executive Law § 63(12), Violation of TILA and Regulation Z, Asserted by the State of New York

66.

The allegations in paragraphs 1-52 are incorporated by reference. 67.

N.Y. Exec. Law § 63(12) authorizes the NYAG to bring an action to enjoin repeated illegal acts or persistent illegality in the carrying on, conducting, or transaction of business.

68.

TILA provides that “[n]o credit card shall be issued except in response to a request or application therefor.” 15 U.S.C. § 1642. 69.

Regulation Z states that no credit card may be issued to any person except in response to an oral or written request or application for the card. 12 C.F.R. § 1026.12(a)(1).

70.

Sterling issued credit cards to consumers without their knowledge or consent and not in response to an oral or written request for the card. 71.

Therefore, Sterling has violated TILA and Regulation Z. 15 U.S.C. § 1642; 12 C.F.R. § 1026.12(a)(1).

72.

By its actions in violation of TILA and Regulation Z, Sterling has engaged in repeated and persistent illegal conduct in violation of N.Y. Exec. Law § 63(12). Count IV—Violation of the CFPA, Asserted by the Bureau and the State of New York 73.

The allegations in paragraphs 1-52 are incorporated by reference. 74.

Sterling’s violations of TILA and Regulation Z, described in Count II, constitute violations of § 1036 of the CFPA. 12 U.S.C. § 5536(a)(1)(A).

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Count V—Deception under the CFPA Regarding Promotional Financing Terms, Asserted by the Bureau and the State of New York 75.

The allegations in paragraphs 1-52 are incorporated by reference. 76.

Sterling’s employees misrepresented certain financing terms to consumers, including the applicable interest rate, monthly payment amount, and eligibility for promotional financing.

77.

In these instances, consumers did not know the terms of the extension of credit they received until they noticed them on a billing statement. 78.

Consumers reasonably relied on Sterling’s employees’ statements regarding the terms of the extension of credit they would receive, and consumers opened lines of credit and made purchase decisions on the understanding that they would receive the terms represented to them by Sterling’s employees. 79.

Sterling’s statements or omissions to consumers regarding the terms of or consumers’ eligibility for promotional financing plans were false or misleading and constituted deceptive acts and practices, in violation of the CFPA. 12 U.S.C. §§ 5531(a), 5536(a)(1)(B).

Count VI—Unfairness under the CFPA Regarding PPP Enrollment, Asserted by the Bureau and the State of New York 80.

The allegations in paragraphs 1-52 are incorporated by reference. 81.

Under the CFPA, an act or practice is “unfair” where the Bureau has “a reasonable basis” to conclude that “the act or practice causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by consumers,” and that “such substantial injury is not outweighed by countervailing benefits to consumers or to competition.” 12 U.S.C. § 5531(c)(1). Case 1:19-cv-00448 Document 1 Filed 01/16/19 Page 14 of 18

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82.

Sterling’s employees enrolled consumers in PPP insurance without their knowledge or consent.

83.

This practice typically occurred when employees enrolled consumers in PPP insurance without informing them that they were being enrolled or misled consumers about what they were signing up for. 84.

This conduct was likely to cause substantial injury because consumers were charged a monthly fee for the coverage in an amount proportional to their purchase or balance amount, which consumers could not reasonably avoid because they were not aware that they had the option to accept or decline coverage. 85.

The harm to consumers from being enrolled in and charged for PPP insurance without their knowledge was not outweighed by countervailing benefits to consumers or competition; Sterling’s practice of enrolling consumers in its optional PPP insurance without their knowledge or consent did not provide any benefits that would encourage legal business practices or competition. 86.

Therefore, Sterling committed unfair acts or practices, in violation of §§ 1036(a)(1)(B) and 1031(c)(1) of the CFPA. 12 U.S.C. §§ 5536(a)(1)(B), 5531(c)(l). Count VII—Fraudulent Practices under Executive Law § 63(12), Asserted by the State of New York 87.

The allegations in paragraphs 1-52 are incorporated by reference. 88.

Exec. Law § 63(12) authorizes the NYAG to seek injunctive relief and other equitable relief and damages when a person or entity engages in repeated or persistent fraudulent conduct in the operation of a business. Case 1:19-cv-00448 Document 1 Filed 01/16/19 Page 15 of 18

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89.

Exec. Law § 63(12) broadly defines fraud to include “any device, scheme or artifice to defraud and any deception, misrepresentation, concealment, suppression, false pretense, false promise or unconscionable contractual provisions.” 90.

Sterling has engaged in repeated fraudulent acts and practices in the operation of a business by conduct, including but not limited to: i) deceiving consumers about credit-card applications and enrollment; ii) misrepresenting to consumers the terms and conditions of Sterling’s promotional financing; and iii) failing to disclose that consumers are enrolling in payment-protection insurance. 91.

Sterling has therefore engaged in repeated and persistent fraud in violation of Exec. Law § 63(12).

Count VIII—Deceptive Practices under New York General Business Law § 349, Asserted by the State of New York

92.

The allegations in paragraphs 1-52 are incorporated by reference. 93.

GBL § 349 provides that “[d]eceptive acts or practices in the conduct of any business . . . in this state are hereby declared unlawful.” 94.

GBL § 349 authorizes the NYAG to bring an action for an injunction, restitution, and civil penalties when any individual has engaged or is about to engage in deceptive practices in the State of New York. 95.

Sterling’s employees have engaged in deceptive acts and practices by, including but not limited to: i) deceiving consumers about credit-card applications and enrollment; ii) misrepresenting to consumers the terms and conditions of Sterling’s promotional financing; and iii) failing to disclose that consumers are enrolling in payment-protection insurance.

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96.

Sterling has therefore engaged in deceptive acts or practices in violation of GBL § 349.

DEMAND FOR RELIEF The Bureau and the State of New York request that the Court: a.

enjoin Sterling from committing future violations of the CFPA, Truth in Lending Act, Regulation Z, Exec. Law § 63(12), and GBL § 349; b.

order Sterling to pay damages, restitution, or other monetary relief to consumers;

c.

order Sterling to pay disgorgement or compensation for unjust enrichment;

d.

impose a civil money penalty under the CFPA; e.

impose a civil money penalty for each violation of GBL § 349 pursuant to GBL § 350-d;

f.

order Sterling to pay the costs incurred in connection with prosecuting this action; and g.

award additional relief as the Court may determine to be just and proper.

Respectfully submitted,

KRISTEN A. DONOGHUE Enforcement Director JEFFREY PAUL EHRLICH Deputy Enforcement Director

s/ Patricia H. Hensler PATRICIA H. HENSLER (FL 102303) LETITIA JAMES Attorney General of the State of New York

JANE M. AZIA (NY 1539600) Bureau Chief, Consumer Frauds and Protection Bureau Case 1:19-cv-00448 Document 1 Filed 01/16/19 Page 17 of 18

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STEFANIE ISSER GOLDBLATT (NY 2750594) NAVID VAZIRE (NY 4520391) Enforcement Attorneys Bureau of Consumer Financial Protection 1700 G Street, NW Washington, D.C. 20552 Telephone (Hensler): 202-435-7829 Telephone (Goldblatt): 212-328-7011 Telephone (Vazire): 312-577-7670 Facsimile: 202-435-7722 E-mail: [email protected] E-mail: [email protected] E-mail: [email protected] Attorneys for Plaintiff Bureau of Consumer Financial Protection

CAROLYN FAST (NY 4095535) Assistant Attorney General 28 Liberty St.

New York, N.Y. 10005 Telephone (Azia): 212-416-8727 Telephone (Fast): 212-416-6250 Facsimile: 212-416-6003 E-mail: [email protected] E-mail: [email protected] Attorneys for Plaintiff State of New York

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Stipulation

PDF of this document (15 pages)

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IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK Bureau of Consumer Financial Protection and the People of the State of New York, by Letitia James, Attorney General for the State of New York, Plaintiffs, v.

Sterling Jewelers Inc., Defendant.

Case No.

STIPULATED FINAL JUDGMENT AND ORDER Plaintiffs, the Bureau of Consumer Financial Protection (“Bureau”) and the People of the State of New York (“State of New York”), commenced this civil action on January 16, 2019 to obtain injunctive and monetary relief and civil penalties from Sterling Jewelers Inc. The Complaint alleges violations of §§ 1031, 1036(a)(1), 1054, and 1055 of the Consumer Financial Protection Act of 2010 (“CFPA”), 12 U.S.C. §§ 5531, 5536(a)(1), 5564, 5565, the Truth in Lending Act (“TILA”), 15 U.S.C. § 1601 et seq., its implementing regulation, Regulation Z, 12 C.F.R. part 1026, and New York Executive Law § 63(12) (“Exec. Law”) and New York General Business Law (“GBL”) § 349, in connection with Defendant’s in-store credit-financing practices, including (1) submitting credit applications for consumers and causing credit cards to be issued without consumers’ knowledge or consent; (2) misrepresenting credit-financing terms and conditions; and (3) enrolling consumers in payment-protection insurance without their knowledge or consent.

Plaintiffs and Defendant agree to entry of this Stipulated Final Judgment and Order (“Order”), without adjudication of any issue of fact or law, to settle and resolve all 19 Civ. 448 USDC SDNY DOCUMENT ELECTRONICALLY FILED DOC #:

DATE FILED:

2/7/2019 New York, New York February 7, 2019 Case 1:19-cv-00448-LGS Document 14 Filed 02/07/19 Page 1 of 15

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matters in dispute arising from the conduct alleged in this action. FINDINGS 1.

This Court has jurisdiction over the parties and the subject matter of this action pursuant to 12 U.S.C. § 5565(a)(1) and 28 U.S.C. §§ 1331, 1345, and 1367(a). 2.

This Court has jurisdiction over the State of New York’s state-law claims because they are so related to the federal claims that they form part of the same case or controversy. 28 U.S.C. § 1367(a).

3.

Venue in the Southern District of New York is proper under 28 U.S.C. § 1391(b) and (c) and 12 U.S.C. § 5564(f).

4.

Defendant neither admits nor denies any allegations in the Complaint, except as specified in this Order. For purposes of this Order, Defendant admits the facts necessary to establish the Court’s jurisdiction over it and the subject matter of this action.

5.

Defendant waives all rights to seek judicial review or otherwise challenge or contest the validity of this Order and any claim it may have under the Equal Access to Justice Act, 28 U.S.C. § 2412, concerning the prosecution of this action to the date of this Order. Each Party agrees to bear its own costs and expenses, including, without limitation, attorneys’ fees.

6.

Entry of this Order is in the public interest. DEFINITIONS 7.

The following definitions apply to this Order: a.

“Board” means Defendant’s duly-elected and acting Board of Directors.

b.

“Clearly and prominently” means:

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i.

in textual communications (e.g., printed publications or words displayed on the screen of an electronic device), the disclosure must be of a type size and location sufficiently noticeable for an ordinary consumer to read and comprehend it, in print that contrasts with the background on which it appears; ii.

in communications disseminated orally or through audible means (e.g., radio or streaming audio), the disclosure must be delivered in a volume and cadence sufficient for an ordinary consumer to hear and comprehend it;

iii.

in communications disseminated through video means (e.g., television or streaming video), the disclosure must be in writing in a form consistent with subsection (i), and must appear on the screen for a duration sufficient for an ordinary consumer to read and comprehend it;

iv.

in communications made through interactive media such as the internet, online services, and software, the disclosure must be unavoidable Case 1:19-cv-00448-LGS Document 14 Filed 02/07/19 Page 3 of 15

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and presented in a form consistent with subsection (i);

v.

in communications that contain both audio and visual portions, the disclosure must be presented simultaneously in both the audio and visual portions of the communication; and vi.

in all instances, the disclosure must be presented before the consumer incurs any financial obligation, in an understandable language and syntax, and with nothing contrary to, inconsistent with, or in mitigation of the disclosures used in any communication with the consumer.

c.

“Defendant” means Sterling Jewelers Inc. and its successors and assigns.

d.

“Effective Date” means the date on which the Order is entered on the docket.

e.

“Enforcement Director” means the Assistant Director of the Office of Enforcement for the Bureau of Consumer Financial Protection, or his or her delegee. f.

“Payment-Protection Insurance” means the optional creditinsurance offered to Sterling credit customers to help them make their monthly payments in the event of death, disability, loss of property due to burglary or perils, or loss of work. Case 1:19-cv-00448-LGS Document 14 Filed 02/07/19 Page 4 of 15

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g.

“Related Consumer Action” means a private action by or on behalf of one or more consumers or an enforcement action by another governmental agency brought against Defendant based on substantially the same facts as described in the Complaint. ORDER CONDUCT RELIEF I. Prohibition on Deceptive Practices IT IS ORDERED that:

8.

Defendant and its officers, agents, servants, employees, and attorneys, and all other persons in active concert or participation with them who have actual notice of this Order, whether acting directly or indirectly, in connection with the marketing, advertising, promoting, offering or originating of any credit card, may not misrepresent, or assist others in misrepresenting, expressly or impliedly: a.

the reasons for requesting consumers’ personal information; b.

the fact that consumers’ information is being used to complete a credit-card application;

c.

that completing a credit-card application results in credit-card approval or denial;

d.

the applicable financing terms, including the interest rate, monthly payment amount, and eligibility for promotional financing; or e.

the impact of conducting a hard credit inquiry on a consumer’s credit report or credit score.

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II. Prohibition on Unauthorized Issuance of a Credit Card IT IS FURTHER ORDERED that:

9.

Defendant and its officers, agents, servants, employees, and attorneys, and all other persons in active concert or participation with them who have actual notice of this Order, whether acting directly or indirectly, in connection with the marketing, advertising, promoting, offering or originating of any credit card, are hereby permanently restrained and enjoined from issuing credit cards to consumers without their knowledge or consent, and from misrepresenting the purpose of any form or request for personal consumer-identification data. III. Prohibitions Regarding Payment-Protection Insurance Enrollment IT IS FURTHER ORDERED that:

10.

Defendant and its officers, agents, servants, employees, and attorneys, and all other persons in active concert or participation with them who have actual notice of this Order, whether acting directly or indirectly, may not, knowingly or recklessly: a.

fail to disclose clearly and prominently to consumers that they are enrolling in an optional Payment-Protection Insurance product; b.

fail to disclose to consumers that their selection or signature on the PIN-pad, tablet, or other form or device will result in their enrollment in Payment-Protection Insurance; or c.

fail to disclose the applicable terms of Payment-Protection Insurance.

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IV. Policies and Procedures IT IS FURTHER ORDERED that:

11.

Defendant and its officers, agents, servants, employees, and attorneys, and all other persons in active concert or participation with them who have actual notice of this Order, whether acting directly or indirectly, must maintain policies and procedures related to sales of credit cards and any related add-on products, such as Payment- Protection Insurance, that are reasonably designed to ensure consumer consent is obtained before any such product is sold or issued to a consumer. Such policies and procedures must include provisions for capturing and retaining consumer signatures and other evidence of consent for such products and services. MONETARY PROVISIONS V. Order to Pay Civil Money Penalty to the Bureau on Federal Claims IT IS FURTHER ORDERED that:

12.

Under § 1055(c) of the CFPA, 12 U.S.C. § 5565(c), by reason of the violations of law alleged in the Complaint and continuing until the Effective Date, and taking into account the factors in 12 U.S.C. § 5565(c)(3), Defendant must pay a civil money penalty of $10 million to the Bureau.

13.

Within 10 days of the Effective Date, Defendant must pay the civil money penalty by wire transfer to the Bureau or to the Bureau’s agent in compliance with the Bureau’s wiring instructions.

14.

The civil money penalty paid under this section of the Order will be deposited in the Civil Penalty Fund of the Bureau as required by § 1017(d) of the CFPA, 12 U.S.C. § 5497(d).

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15.

Defendant must treat the civil money penalty paid under this Order as a penalty paid to the government for all purposes. Regardless of how the Bureau ultimately uses those funds, Defendant may not: a.

claim, assert, or apply for a tax deduction, tax credit, or any other tax benefit for any civil money penalty paid under this Order; or b.

seek or accept, directly or indirectly, reimbursement or indemnification from any source, including but not limited to payment made under any insurance policy, with regard to any civil money penalty paid under this Order.

VI. Order to Pay Civil Money Penalty to the State of New York 16.

Defendant must pay a civil money penalty of $1 million to the State of New York.

17.

Within 10 days of the Effective Date, Defendant must pay the civil money penalty to the State of New York via wire transfer, payable to the “State of New York,” which will reference this Order and will be addressed to the attention of Carolyn Fast, Office of the Attorney General, Bureau of Consumer Frauds and Protection, 28 Liberty Street, New York, NY 10005.

18.

Defendant must treat the civil money penalty paid to the State of New York under this Order as a penalty paid to the government for all purposes. Regardless of how the State of New York ultimately uses those funds, Defendant may not: a.

claim, assert, or apply for a tax deduction, tax credit, or any other tax benefit for any civil money penalty paid under this Order; or b.

seek or accept, directly or indirectly, reimbursement or indemnification from any source, including but not limited to Case 1:19-cv-00448-LGS Document 14 Filed 02/07/19 Page 8 of 15

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payment made under any insurance policy, with regard to any civil money penalty paid to the State of New York under this Order. VII. Additional Monetary Provisions IT IS FURTHER ORDERED that:

19.

In the event of any default on Defendant’s obligations to make payment under this Order, interest, computed under 28 U.S.C. § 1961, as amended, will accrue on any outstanding amounts not paid from the date of default to the date of payment, and will immediately become due and payable.

20.

Defendant must relinquish all dominion, control, and title to the funds paid under this Order to the fullest extent permitted by law and no part of the funds may be returned to Defendant.

21.

Under 31 U.S.C. § 7701, Defendant, unless it already has done so, must furnish to the Bureau and the State of New York its taxpayer identifying numbers, which may be used for purposes of collecting and reporting on any delinquent amount arising out of this Order.

22.

Within 30 days of the entry of a final judgment, order, or settlement in a Related Consumer Action, Defendant must notify the Enforcement Director and the State of New York of the final judgment, order, or settlement in writing. That notification must indicate the amount of redress, if any, that Defendant paid or is required to pay to consumers and describe the consumers or classes of consumers to whom that redress has been or will be paid.

23.

To preserve the deterrent effect of the civil money penalty in any Related Consumer Action, Defendant may not argue that Defendant is entitled to, nor may Defendant benefit by, any offset or reduction of any monetary remedies imposed in the Case 1:19-cv-00448-LGS Document 14 Filed 02/07/19 Page 9 of 15

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25.

Within 7 days of the Effective Date, Defendant must: Related Consumer Action because of the civil money penalty paid in this action. If the court in any Related Consumer Action offsets or otherwise reduces the amount of compensatory monetary remedies imposed against Defendant based on the civil money penalty paid in this action or based on any payment that the Bureau makes from the Civil Penalty Fund, Defendant must, within 30 days after entry of a final order granting such offset or reduction, notify the Bureau and pay the amount of the offset or reduction to the U.S. Treasury. Such a payment will not be considered an additional civil money penalty and will not change the amount of the civil money penalty imposed in this action.

COMPLIANCE PROVISIONS VIII. Reporting Requirements IT IS FURTHER ORDERED that:

24.

Defendant must notify the Bureau and the State of New York of any development 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 company; the creation or dissolution of a subsidiary, parent, or affiliate that engages in any acts or practices subject to this Order; the filing of any bankruptcy or insolvency proceeding by or against Defendant; or a change in Defendant’s name or address. Defendant must provide this notice at least 30 days before the development or as soon as practicable after the learning about the development, whichever is sooner.

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a.

designate at least one telephone number and email, physical, and postal address as points of contact, which the Bureau and the State of New York may use to communicate with Defendant; b.

identify all businesses for which Defendant is the majority owner, or that Defendant directly or indirectly controls, by all of their names, telephone numbers, and physical, postal, email, and Internet addresses; and c.

describe the activities of each such business, including the products and services offered, and the means of advertising, marketing, and sales.

26.

Defendant must report any change in the information required to be submitted under Paragraph 24 at least 30 days before the change or as soon as practicable after the learning about the change, whichever is sooner. 27.

Within 90 days of the Effective Date, Defendant must submit to the Enforcement Director and the State of New York an accurate written compliance progress report sworn to under penalty of perjury, which, at a minimum: a.

lists each applicable paragraph and subparagraph of the Order and describes in detail the manner and form in which Defendant has complied with each such paragraph and subparagraph of this Order; and b.

attaches a copy of each order acknowledgment obtained under Section IX, unless previously submitted to the Plaintiffs. Case 1:19-cv-00448-LGS Document 14 Filed 02/07/19 Page 11 of 15

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IX. Order Distribution and Acknowledgment IT IS FURTHER ORDERED that:

28.

Within 7 days of the Effective Date, Defendant must submit to the Enforcement Director an acknowledgment of receipt of this Order, sworn under penalty of perjury.

29.

Within 30 days of the Effective Date, Defendant must deliver a copy of this Order to each of its board members and executive officers, as well as to any managers, employees, service providers, or other agents and representatives who have responsibilities related to the subject matter of the Order. 30.

For 5 years from the Effective Date, Defendant must deliver a copy of this Order to any business entity resulting from any change in structure referred to in Section VIII, any future board members and executive officers, as well as to any managers, employees, service providers, or other agents and representatives who will have responsibilities related to the subject matter of the Order before they assume their responsibilities.

31.

Defendant must secure a signed and dated statement acknowledging receipt of a copy of this Order, ensuring that any electronic signatures comply with the requirements of the E-Sign Act, 15 U.S.C. § 7001 et seq., within 30 days of delivery, from all persons receiving a copy of this Order under this Section. X. Recordkeeping IT IS FURTHER ORDERED that:

32.

Defendant must create, for at least 5 years from the Effective Date, the following business records:

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a.

all documents and records necessary to demonstrate full compliance with each provision of this Order, including consumer consent for credit-card applications, financing terms and conditions, and any optional credit-insurance products, in addition to all submissions to the Bureau; and b.

copies of all sales scripts; training materials; advertisements; websites; PIN-pad and tablet credit disclosures, and other marketing materials relating to the subject of this Order; and including any such materials used by a third party on behalf of Defendant.

33.

Defendant must retain the documents identified in Paragraph 32 for at least 5 years after creation.

34.

Defendant must make the documents identified in Paragraph 32 available to the Bureau or the State of New York upon request. XI. Notices IT IS FURTHER ORDERED that:

35.

Unless otherwise directed in writing by the Bureau, Defendant must provide all submissions, requests, communications, or other documents relating to this Order in writing, with the subject line, “In re Sterling Jewelers Inc., ENF Matter No. 2016-1806-02,” and send them by overnight courier or first-class mail to the below addresses and contemporaneously by email to [email protected]: Assistant Director for Enforcement Bureau of Consumer Financial Protection ATTENTION: Office of Enforcement 1700 G Street, N.W.

Washington D.C. 20552 Case 1:19-cv-00448-LGS Document 14 Filed 02/07/19 Page 13 of 15

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IT IS FURTHER ORDERED that, to monitor Defendant’s compliance with this Order:

36.

Within 14 days of receipt of a written request from the Bureau or the State of New York, Defendant must submit requested non-privileged information related to requirements of this Order, which must be sworn under penalty of perjury; provide sworn testimony related to requirements of this Order and Defendant’s compliance with those requirements; or produce non-privileged documents related to requirements of this Order and Defendant’s compliance with those requirements. 37.

Defendant must permit Bureau or State of New York representatives to interview about the requirements of this Order and Defendant’s compliance with those requirements any employee or other person affiliated with Defendant who has agreed to such an interview. The person interviewed may have counsel present. 38.

Nothing in this Order will limit the Bureau’s lawful use of compulsory process, under 12 C.F.R. § 1080.6 or the State of New York’s use of its subpoena power under Exec. Law § 63(12) or GBL § 349.

XIII. Miscellaneous IT IS FURTHER ORDERED that:

39.

The Bureau and the State of New York release and discharge Defendant from all potential liability for law violations that the Bureau and the State of New York have or might have asserted based on the practices described in the Complaint and The People of the State of New Y ork, by Letitia James, Attorney General for the State of New York ATTENTION: Carolyn Fast, Consumer Frauds and Protection Bureau 28 Liberty St.

New York, N.Y. 10005 XII. Compliance Monitoring Case 1:19-cv-00448-LGS Document 14 Filed 02/07/19 Page 14 of 15

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40.

If any clause, provision, or section of this Order shall, for any reason, be held to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other clause, provision, or section of this Order and this Order shall be construed and enforced as if such invalid, illegal, or unenforceable clause, provision, or section had not been contained herein. 41.

Nothing contained herein shall be construed as to deprive any person of any private right under the law.

XIV. Retention of Jurisdiction IT IS FURTHER ORDERED that:

42.

The Court will retain jurisdiction of this matter for the purpose of enforcing this Order.

XV. Service IT IS FURTHER ORDERED that:

43.

This Order may be served upon Defendant by electronic mail, certified mail, or United Parcel Service, either by the United States Marshal, the Clerk of the Court, or any representative or agent of the Bureau or the State of New York. Order, to the extent such practices occurred before the Effective Date and the Bureau or the State of New York knows about them as of the Effective Date. The Bureau or the State of New York may use the practices described in this Order in future enforcement actions against Defendant and its affiliates, including, without limitation, to establish a pattern or practice of violations or the continuation of a pattern or practice of violations or to calculate the amount of any penalty. This release does not preclude or affect any right of the Bureau or the State of New York to determine and ensure compliance with the Order, or to seek penalties for any violations of the Order. Case 1:19-cv-00448-LGS Document 14 Filed 02/07/19 Page 15 of 15