JC Penney A Pickpocket?

Nancy Smith, right, hugs her daughter Tracey outside of the L.A. Fitness Center Tuesday, Aug. 4, 2009, in Bridgeville, Pa., where a gunman reportedly opened fire in the aerobics room. (AP Photo/Don Wright)
AP Photo/Don Wright
When most people hear the name JC Penney, they think of that familiar store at the local mall. But not Gayle Pitts. As CBS News Correspondent Cynthia Bowers reports, Gayle Pitts doesn't think about retail -- she thinks about a rip-off.

"I think the scheme is brilliant but it's completely dishonest," she says.

This scheme, she says, left her paying for an insurance policy she never wanted and didn't authorize. It first came to her attention when she noticed a charge for $7.95 on her credit card bill.

"It was an unrecognizable name," Pitts says, "just a series of numbers and letters, so I didn't think much about it."

But when the letters JCPINS kept showing up, she called her credit card company, who told her the charge was for a JC Penney insurance policy -- for accidental death and dismemberment, a plan most insurance companies don't even sell. When Pitts complained, Penney told her she agreed to the policy over the phone. She doesn't remember doing that, but her attorney says she's just one of as many as 8 million Americans caught up by the giant retailer's insurance telemarketers.

"I think it's like having your pocket picked by your favorite aunt," says Pitt's attorney David Berg.

According to a class action lawsuit, Penney buys names and account numbers from credit card companies. He says salesmen, targeting the poor, elderly and minorities, use a 'free trial period' to lure customers in.

Berg explains, "People think they're getting an accident policy and when you read what injuries are covered, it seems virtually impossible to ever collect. You have to lose both hands above the wrist, both feet above the ankle."

On top of that the suit claims consumers are tricked because they don't know, and aren't told, that the sales rep already has their account number courtesy of the credit card company. The customer, who never signs a receipt or a contract, has to remember to call back and cancel, something many people forget to do.

The monthly payment may seem like small change, but if each of those customers paid about the same as Pitts, Penney would pocket three quarters of a billion dollars a year.

Gayle Pitts says, "Let me put this way, if I were going to buy insurance of any kind, I would not buy it from a department, I would got to an insurance agent."

JC Penney says it will likely appeal the class action status -- which means this case could drag on for years. The retail chain promises a vigorous defense, insisting its sales tactics are fair and that customers are told up front their credit cards will be billed and and sent a reminder.

As for paying claims Penney points out its paid out more than $1 billion in claims, including $9 million as a result of September 11.

But Gayle Pitts has already learned her lesson that sometimes what you don't know can cost you.