The Attorneys General of fourteen states filed a lawsuit against jewelry store chain Harris Jewelry, alleging that the company engaged in false and deceptive acts and illegal lending in connection with the financing of jewelry sales to active-duty service members.

The AGs alleged that Harris Jewelry targeted service members through "Operation Teddy Bear," a purported charitable program in which the company sold teddy bears in military uniforms with promises of charitable donations. The AGs alleged, however, that the charitable program was "nothing more than a marketing ploy to dupe service members into high-priced, illegal in-house financing contracts for vastly overpriced jewelry." (We previously blogged about a separate action Operation Troop Aid, the charity that participated in Operation Teddy Bear.)

The AGs also alleged that Harris Jewelry sells lines of military-themed jewelry -- such as the "Mother's Medal of Honor" and the "Token of Pride Coin" -- on credit that it provides under the name of affiliated company Consumer Adjustment Corp. The AGs further alleged that this relationship is not clearly disclosed to consumers. The AGs alleged that the company promotes the financing program as a way to build or improve service members' credit scores so that they can buy other things that they want, like nice cars.

In addition, the AGs claimed that Harris Jewelry advertises "quality" jewelry on "fair" terms, but in reality marks up its jewelry between 600% and 1000%, which the AGs said is considerably higher than the industry standard. The AGs also claimed that, with financing, Harris Jewelry charged an additional interest rate of 14.99%, "thereby disguising its inflated profit-taking and the true cost of the items." For example, Harris Jewelry allegedly purchases the "Mother's Medal of Honor" for about $77 and then sells it for about $800, plus warranties and interest.

In addition to New York, the states participating in the multistate investigation include Delaware, Georgia, Hawaii, Idaho, Illinois, Kansas, Louisiana, Maryland, Nevada, North Carolina, Pennsylvania, Tennessee, and Virginia.

There are so many interesting things going on in this case. It's further evidence that the states are stepping up their consumer protection enforcement. It's another case this year involving consumer financing issues. It's also yet another case this year involving companies that are allegedly preying on military consumers.

It's also interesting to see how this case isn't merely about advertising claims and the sufficiency of disclosures. The AGs here are actually challenging the business model itself, saying that it's illegal to operate a jewelry store for the purpose of selling jewelry at inflated prices through high-priced financing contracts. While this may be an extreme case, it's worth considering where to draw the line here. Are the AGs suggesting that some markups are just too high? Does advertising a high price -- at least in a category like jewelry -- make some sort of implied claim about value? In addition, are the AGs saying that it may be an improper business practice if too large of a portion of your company's profits are generated by financing?

{ "My office will not tolerate companies that seek to take advantage of New Yorkers in order to line their own pockets" -- New York Attorney General Barbara D. Underwood