October 24, 2013

Penney's affiliates to repay $2.7M to Iowans in consumer fraud case

A Polk County judge on Thursday ordered two companies affiliated with J.C. Penney Co. Inc. to pay more than $2.7 million in refunds to Iowa customers who were enrolled in buying club memberships.

The consent judgment approved against JCPenney Direct Marketing Services LLC and Stonebridge Benefit Services Inc., both based in Plano, Texas, resolves a consumer fraud lawsuit that Iowa Attorney General Tom Miller initially filed in August 2011.

The lawsuit alleged that the companies "repeatedly violated Iowa law over the course of many years by enrolling thousands of JCPenney customers into membership programs, and then charging their credit cards repeatedly for programs many consumers didn't even know they were members of," Miller said in a press release.

According to Miller, the membership charges were typically made to a credit card or debit card that a consumer had used to make a purchase from JCPenney, often a JCPenney card. Miller said that enrollment into a free trial membership, coupled with a negative-option arrangement that required a consumer to affirmatively cancel to avoid charges, spelled losses for a host of Iowans.

"When Iowans placed an online or phone order for a JCPenney product, too often they would end up saddled with ongoing monthly charges for a membership they didn't want," Miller said. "These charges would go on and on until the consumer stepped forward to cancel. Many consumers who didn't notice the charges, or who misinterpreted them, suffered considerable losses."

The consent judgment orders JCPenney and Stonebridge to comply with Iowa's Buying Club Law and Consumer Fraud Act in connection with any future sales of its memberships. The judgment also requires the defendants to pay $2,738,448 for refunds to consumers, and an additional $164,375 to the state for consumer fraud enforcement. While agreeing to pay more than $2.9 million to settle the case, the defendants denied liability.

Stonebridge was also sanctioned for violating a court order to produce documents and was fined $29,500 by the court. "A vigorous defense by those accused of consumer fraud is to be expected, but Stonebridge's ill-advised maneuvering in this case stands out," Miller said.

The defendants enrolled tens of thousands of Iowans in several different membership programs, including PlanPlus, MotorPlus, BackPorch Home & Garden, Leisure Plus, Fun Family Rewards, Everyday Bargains, Perfect Home, Savings Solution and Savings2Go.

Miller said these companies are providing a list of Iowans who were charged for memberships, so consumers do not need to contact his office. Refund checks are expected to be mailed out later this year or in early 2014.