Household HSBC Watch

Kmart Holding Corp. is acquiring Sears, Roebuck and Co., in a surprise $11 billion deal that will create the nation’s third largest retailer, it was announced on November 17, 2004.

Only days after predatory lender Household Retail Services, now known as HSBC Retail Services, announced a deal with K-Mart to market a “K-Mart Rewards Card” the merger with Sears was announced.

For years many speculated that Sears was in the finance business, in part because retail performance was poor, and in part because their credit card portfolio was so large.

Sears traditionally claims to collect on their own accounts, at least at first. Sears fails to comply with consumer credit counseling and debt management programs, and historically left the consumer in a tight spot while attempting to repo everything from car batteries to the tires on a customers car while they are parked at the bankruptcy court.

K-Mart once required a mug shot photo and a fingerprint if customers wanted to cash a check. The policy, used in the late 60’s 1970’s, alienated baby boomers and helped put the retailer in bankruptcy.

Even embattled and imprisoned Martha Stewart is happy, as her company stock rose after the announcement.

With a predatory lender backing the K-Mart credit card, Sears in trouble, Martha Stewart in prison, and K-Mart just out of bankruptcy, watch for this group to make history.

Baby boomers remember when Sears stopped their 100 percent return of broken Craftsman products. Blacks in the South remember when they had to ask a white man to return defective products to Sears or otherwise get the cold shoulder. Boomers remember the humiliating mug shot and finger print process at K-Mart. And we all remember when K-Mart never filled our rain checks, never called, and never sent their “post card.”

We remember trying to use our Visa card at Sears, only to be told “Sears card, cash or check only.” Credit counselors, debt management representatives, and attorneys remember Sears refusing to lower their interest rate to work with consumers. Remember Craftsman riding lawn mowers with flammable defective fuel tanks? Sears automotive getting sued in California and other states for predatory practices in the 1980’s?

Remember, with clear knowledge that Household International, Household Retail Services, and HSBC Retail services credited customer’s payments late, and knowledge that the company profited from illegal late fees, past due fees, and overlimit fees, K-Mart signed an agreement with predatory credit card backer HSBC Retail Services.

Insiders state that HSBC Retail Services offered K-Mart better terms and a more “Liberal” policy which would increase profits at struggling K-Mart. With Mac Tools, GE credit turned down many of Mac’s dealers and representatives, but when HSBC Retail Services picked up the contract the approval rate increased. Analysts and legal experts have varying views on the credit standards behind such contracts.

One tactic used by predatory lenders is to finance high cost items tied to one’s home, such as vinyl siding and roofing, for low income borrowers. We still see those Sears ads, although we are not saying Sears is predatory. Sears did, however, sell some of its home improvement contracts to Household International when Household was embroiled in predatory lending battles. To have your home tied to Household International because of Sears and through no fault of your own is a big, big nightmare that most people will never forget.

If a retailer needs cash, it securitizes part of its outstanding credit card balances from its customers into a “credit card receivables trust”. When investors such as pension funds invest in the trust, retirement income and life long dreams of the elderly can see Enron-like devastation if the lender is predatory and displays willful disregard for whether or not the consumer can repay the money.

With a solid credit card receivables trust, some people will default on their cards, but the portfolio should be so diversified that the defaults do not have a big effect. Some trusts, however, lack the diversity. Driven by questionable lending practices, combined with a poor customer base and questionable retail marketing clout (Sears and K-Mart) perhaps this merger is simply a ploy to buy time. We all remember Montgomery Ward.

For that matter, we all remember Sears. Today, if you buy a door knob on your HSBC Retail Services backed credit card, it will probably be a lien against your home for US$5.

Consumer watchdog organization Household - HSBC Watch points out that predatory lending has a widespread effect on the economy, from abuses at the consumer level all the way to investors buying sound investments only to find out that a large number of the underlying investments were a sham.