Signet hit with $11M penalty for deceptive credit practices
New York State Attorney General Letitia James and the Consumer Financial Protection Bureau (a federal office established in 2010 through the post-financial crisis Dodd-Frank Wall Street Reform and Consumer Protection Act), on Wednesday announced an $11 million settlement with Sterling Jewelers Inc. after an investigation found the company signed customers up for store credit cards and enrolled them in a credit insurance product without their consent to do either.
Sterling (a subsidiary of Signet Jewelers Limited, which runs Kay Jewelers, Jared The Galleria of Jewelry and other brands), will pay $11 million in civil penalties ($10 million to the Bureau and $1 million to the State of New York), according to press releases from both offices.
Signet admits no wrongdoing. In a statement emailed to Retail Dive Thursday, the company said it "has cooperated fully with the CFPB and NYAG investigations, and while we disagree with the allegations made against Sterling, we chose to negotiate a resolution of this matter to avoid the time, expense, and uncertainty of litigation with the agencies. We have used this opportunity to internally reaffirm the transparency and fairness of our credit-related policies and we look forward to continuing to provide our customers with access to suitable credit options."
Signet's credit card programs have dogged the company for a few years. In 2016, for example, Bloomberg detailed how the company profited by what some analysts said essentially amounted to sub-prime lending to unqualified consumers. In that report and in the New York Times and elsewhere, analysts have cited concerns that the jeweler was leaning on its credit business to an unhealthy extent.
Much of its store credit business has since been off-loaded to an outside vendor, which has meant millions in lost interest and millions in payments toward the outsourcing, according to a Signet press release. But that may be just as well, considering the dubious practices described by the state of New York and the federal consumer protection watchdog.
"By tricking consumers into enrolling in store credits cards, Sterling Jewelers betrayed customers' trust and violated the law," Attorney General Letitia James said in a statement. "This settlement holds the company accountable for its misconduct and ensures that no more consumers are deceived."
The alleged deceptions were fairly wide-ranging for a transaction that usually takes place at store checkout. The company required store card enrollment quotas of employees and based their performance reviews and compensation on them, according to the attorney general's office. Tactics included obtaining customer information ostensibly for a "rewards" program but using it to open a credit card — some customers would only find out when they got the card in the mail or noticed an inquiry on their credit report. Even when they were aware they were applying for credit, customers were sometimes deceived regarding the steep terms of the cards, while others were enrolled in credit insurance without their knowledge, according to James.
The loss of credit card income — deceptive or otherwise — will likely continue to pinch, as will the fines announced this week. The company's holiday sales were below its expectations, CEO Virginia Drosos said in a statement Thursday. For the nine weeks ended Jan. 5 store comps fell 1.3%, prompting Signet to revise its fourth-quarter guidance downward, including charges "related to resolution of a previously disclosed regulatory matter," according to a company press release.
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