J.C. Penney to make $50M available to settle lawsuit

Last Updated Nov 12, 2015 1:04 PM EST

NEW YORK - J.C. Penney (JCP) said Wednesday that it will make $50 million available to settle a false advertising class-action lawsuit.

The lawsuit, which was filed in 2012, took issue with the price comparison advertising of private and exclusive branded products that J.C. Penney used in California between November 2010 and January 2012. The lawsuit claimed the retailer's practices didn't comply with California law.

"The idea is called 'price anchoring,' where they advertise an item on sale, they list the original price and the plaintiffs are saying the original price was overstated to make the discount appear bigger," said CBS News' financial contributor Mellody Hobson.

J.C. Penney denies the allegations and said it entered the settlement to end the uncertainties, burden and expense of further protracted litigation.

As part of the settlement, class members -- which are California customers who bought certain J.C. Penney private or exclusive branded products -- will have the option of a cash payment or store credit. The amount of the payment or credit will depend on the total amount purchased by each class member during the class period.

The settlement also involves J.C. Penney implementing or continuing with certain improvements to its price comparison advertising policies and practices, including periodic monitoring and training programs designed to ensure compliance with California's advertising laws.

"Pricing is incredibly complicated by state. So in California for example, they have a rule that an item must be on the floor a third of the time before it is put on sale," Hobson said. "J.C. Penney moves one billion units a year and the rules are different by state, so this is a very, very complicated thing, easy to trip."

Hobson, who also spoke to a senior executive at J.C. Penney about the case, said a recent rift in leadership -- with former CEO Ron Johnson -- at the retailer might be a possible reason for the recent controversy.

"It was not a good period for the company. [Johnson] had made some statements during that period around pricing and changed some policies back and forth that could have tripped them up here," Hobson said. "They're not saying that publicly but that was my sense."

According to Hobson, the J.C. Penney lawsuit is also not an isolated case. Other big retailers -- including Kohl's, Burlington Coat Factory and T.J.Maxx -- are also facing the issue.

Hobson said that California has "some very stringent consumer protection regulations that help these kind of lawsuits."

The J.C. Penney settlement is subject to approval by the U.S. District Court for the Central District of California.

J.C. Penney Co., based in Plano, Texas, will report its third-quarter financial results on Friday.