The New York Attorney General has filed a lawsuit against a group of commonly owned and managed companies headquartered in New York that include companies operating retail jewelry stores in numerous states under the name Harris Jewelry and another company providing financing for sales made at such stores under the name Consumer Adjustment Corp.  One of such stores is located in New York near a military base, as are the defendants’ stores located in other states.  The stores sell lines of military-themed jewelry and other commemorative items.  The defendants also include individuals alleged to have substantial involvement in the companies’ operations.

The complaint alleges that:

• Harris Jewelry marks up its merchandise between 600 and 1,000% over the wholesale price (comparing that to the standard industry jewelry markup of 200 to 300%) and the “excess purchase price,” together with warranties and protection plans offered by Consumer Adjustment as well as other fees and charges, constitutes disguised interest which is added to the financing agreement’s stated 14.99% interest rate.

• Consumer Adjustment finances more than 90% of Harris Jewelry’s sales and the relationship between the companies is never disclosed to consumers.

• Harris Jewelry “professes to accept credit card or cash sales, sales are almost never made in this way.”  Instead, nearly all sales are financed by Consumer Adjustment.

• Servicemembers are enticed to enter the defendants’ stores through the use of a purported charitable program in which Harris Jewelry sells teddy bears in military uniforms with promises of charitable donations and once in a store, tells servicemembers that Harris Jewelry can provide them with an opportunity to build or improve their credit scores through the “Harris Program,” the name given to the financing provided by Consumer Adjustment.  Only after a servicemember agrees to participate in the ”Harris Program” does Harris Jewelry begin to discuss its merchandise with the servicemember in an effort to maximize the amount of credit extended to him or her.

The complaint includes additional allegations regarding the defendants’ practice of advertising an item’s retail price with its “per payday” payment amount.  The AG alleges that the two amounts “bear little resemblance to the total amount paid by a consumer at the end of the financing contract” and thereby prevents a servicemember from calculating the total cost of a purchase.

Based on these allegations and other conduct by the defendants alleged in the complaint, the NY AG makes the following claims:

• The “inflated retail prices and add-ons included in the ‘principal’ amount of the loan” result in an effective rate that violates New York’s civil and criminal usury laws

• The interest charged by the defendants violates the 36% rate limit New York’s General Military Law

•  Defendants’ business practices constitute fraudulent conduct under New York’s Executive Law (which defines “fraud” or “fraudulent”  to include any device, scheme, or artifice to defraud and any deception, misrepresentation, concealment, suppression, false pretense, or unconscionable contract provisions.)  Their business practices also constitute common law fraud because they involved intentional fraudulent conduct by the defendants.

• Defendants’ business practices constitute deceptive acts or practices under New York’s General Business Law (GBL)

• Defendants’ business practices caused the defendants to be a “credit services business” under the GBL and constitute deceptive acts under the GBL provisions that regulate such  businesses.

• Defendants’ practices in connection with the purported charitable program violated provisions of New York’s Executive Law relating to for-profit companies that partner with a charity to sell products for the charity’s benefit.