Private label credit card fraud can quickly erode consumer trust and expose retailers to significant legal and financial consequences. While store-branded credit cards remain an important tool for driving customer loyalty and financing purchases, organizations must ensure that every application is obtained with clear customer consent and transparent disclosures.
The settlement involving Sterling Jewelers serves as a reminder of the importance of ethical sales practices in retail finance. Allegations that consumers were enrolled in store credit cards and related products without their knowledge underscore the risks of incentive structures that prioritize application volume over compliance. The case highlights why responsible lending practices and strong oversight remain essential for retailers offering private label credit cards.
One of my favorite books is All I Really Need to Know I learned in Kindergarten. The title got me and I think the book gives a good life lesson. Used book readers can find gently used copies at Amazon for about $4.
Folks at Sterling Jewelers, the parent of mass market retailers Zales, Kay Jewelers, and Jared could have saved millions if they read (and followed) the book. Today, the NY State Attorney General announced a settlement for application fraud by the aforementioned stores, who are a top mass market vendor of diamonds, rubies, and pearls.
Now, to clarify up front, the issue has nothing to do with Comenity, the jeweler’s private label card issuer. Comenity is a banking entity owned Alliance Data, and is the outgrowth of the old JC Penny and The Limited credit card business. I met the business head of JC Penney Credit about 30 years ago, a man named Ted Spurlock, who was a credit rockstar and suitable for the Credit Card Hall of Fame. Spurlock was installing an autodialer and I was a young manager at Citi looking to do a similar technology test. Comenity is a well managed PLCC company that competes with Synchrony, Citi, Capital One, and a few others [more on Private Label Cards here]. The business head, Ed Heffernan, also hails from Citi, and ran M&A for First Data.
Back to the matter at hand.
In a press release by the NY Attorney General, Letitia James, we read: Attorney General James and Consumer Financial Protection Bureau Announce $11 Million Settlement with Sterling Jewelers (D/b/a Kay Jewelers and Jared).
- The settlement resolves an investigation that revealed that Sterling signed consumers up for store credit cards without the consumers’ knowledge or consent. Sterling also enrolled consumers in a credit insurance product without consumers’ knowledge or consent and misrepresented the terms of the store cards. Pursuant to the settlement, Sterling will pay $11 million in penalties.
- Sterling is based in Ohio and operates approximately 1,500 jewelry stores, including around 130 stores in New York.
- Sterling offers a store-branded credit card that can be used only at Sterling stores. Sterling imposed store card enrollment quotas on employees and based employee performance reviews and compensation on the quotas, creating intense pressure on employees to enroll consumers in store cards.
Hey, you don’t get to lie or cheat in the credit card business. Too many audit trails for dishonest people.
- Sterling employees used a variety of tactics to deceive consumers into enrolling in store credit cards. In some cases, employees induced consumers to provide personal information by purporting to enroll consumers in a “rewards program” or discount program. In reality, sales representatives used the personal information to complete and submit credit card applications. Consumers often did not find out that they had applied for a card until they noticed an unexplained inquiry on their credit report or received the card in the mail.
- In addition, when consumers knew they were applying for credit, Sterling employees misrepresented the terms of the store credit cards. Sterling employees told consumers that they were being enrolled in a “no interest” promotional financing plan, when in reality they were signed up for a plan that included monthly financing fees.
US News and World Reports mentioned that the Jeweler’s employee bonuses tied to card issuance was a factor in Zale’s questionable practice.
Want advice on business ethics? Don’t ask Jared. As Robert Fulghum about his simple little book.
The Sterling Jewelers settlement demonstrates that short-term sales incentives are never worth compromising consumer trust or regulatory compliance. Retailers offering private label credit card fraud prevention programs should focus on transparent application processes, accurate product disclosures, and employee incentives that reward ethical behavior rather than application volume alone.
As regulators continue to scrutinize consumer lending practices, businesses that prioritize compliance and customer consent will be better positioned to protect their reputation, strengthen long-term customer relationships, and avoid costly enforcement actions.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group