Savers settles Minnesota lawsuit, agrees to pay $1.8M to charities

National thrift store chain Savers has agreed to change its business practices in settling a lawsuit filed last month by Minnesota's attorney general alleging the company's marketing misled donors and shoppers.

Savers will publicly disclose how much it gives to various charities from the sales of donated items. It also will pay six local nonprofits $1.8 million, according to a settlement filed Thursday in Hennepin County District Court.

"The settlement will give donors the transparency they need to decide whether and how they want to donate," said Attorney General Lori Swanson. "This is one of the biggest markets nationwide for Savers, which is why this agreement is significant. Minnesota is the first state to put in place these donor transparency reforms."

In response to the settlement, Ken Alterman, the president and CEO of the Bellevue, Wash.-based Savers, said that the company was pleased to have reached the agreement.

"Although we disagree with allegations advanced by the Attorney General in the past, we are satisfied that the Attorney General has resolved her differences with us," Alterman said in a statement. "We will return to devoting our full energy to serving the best interests of the charities and donors of this state as we have proudly done for the last 25 years."

Savers is the largest for-profit thrift store chain in the United States, with 290 locations nationwide and $1 billion in annual revenue as of 2012, according to Swanson's complaint.

Twelve of Savers' 15 Minnesota stores are in the Twin Cities, some operating under the names Unique Thrift and Valu Thrift. Under its business model, Savers solicited donations of used clothing and household goods with what it calls its nonprofit partners at its stores and through phone calls, curbside pickup and donation boxes in the community.

Swanson filed a lawsuit against Savers on May 21 alleging that while the company solicited donations in the name of nonprofit organizations, the nonprofits only received a small fraction of the proceeds from clothing sales and none of the proceeds from the sale of other items such as toys, furniture and dishes.

The agreement was welcome news to the Epilepsy Foundation, which received about half its revenue from a contract with Savers last year and faces its own attorney general lawsuit for continuing to do business with Savers.

"We're encouraged," said executive director Vicki Kopplin. "Now that they've been able to resolve their issues, we hope it's going to be fairly easy for us to resolve our suit."

Under the settlement, Savers must register with the state of Minnesota as a professional fundraiser and clearly state it is a for-profit professional fundraiser in any signs, postcards or phone calls.

The settlement also requires that Savers:
-- Disclose its contract with each charity, including the percentage of a donation's value that goes to the charity and whether the rate for donations picked up at the curb differs from donations dropped off at stores or donation boxes.
-- File annual reports with the attorney general's office on the gross value of donations received, expenses and payments to each charity.
-- Stop mixing donations solicited on behalf of one charity with donations intended for another.
-- Pay charities directly for nonclothing donations. Savers previously dealt with so called "hard goods" by offering charities a slightly higher bulk clothing rate.

In a statement, Savers said it had "paid more than $7.5 million to Minnesota charities, kept over 40 million pounds of goods out of local landfills and provided great value to customers by selling items in our stores at an average price under $4."

"We have agreed to further enhance disclosures to charitable donors, including reiterating through signs and written materials we operate as a for-profit professional fundraiser in the state of Minnesota," the company said of the changes it would make as a result of the agreement.

Savers will continue to accept clothing and household items while it registers as a fundraiser, but dropped-off donations are not currently tax deductible.

Swanson's office began investigating Savers in late 2013 after receiving complaints. She released the findings of the investigation in November 2014 and publicly criticized the company's business practices. At that point, three of the six charities mentioned in the suit dropped their contracts with Savers, including Courage Kenny Foundation, Lupus Foundation and True Friends.

Disabled American Veterans Department of Minnesota receives about 60 percent of its revenue from its Savers contract and small car vehicle donation program, said director of operations Joshua Vrtacnik. The Epilepsy Foundation last year received $730,000 from its Savers contract, Kopplin said.

While some nonprofit organizations contract with Savers to handle all aspects of the solicitation and pickup, the Epilepsy Foundation employs 30 people to run its own curbside pickup program. After sending postcards or calling to ask for donations, Epilepsy Foundation employees drive through the neighborhood to pick up donated goods. Used clothes are sold to Savers at a bulk rate of 43 cents per pound. The contract requires the Epilepsy Foundation to include household goods, as well.

"It's been a steady source of reliable and unrestricted funding," Kopplin said. "I believe the majority of donors just want their items picked up conveniently and want the donation to go to a good cause, but we have no problem being absolutely transparent."