Consumer agency: ‘Fee scam’ cheated troops of $5 on financing contracts

Tens of thousands of service members will get restitution checks from a retailer that allegedly "tricked" them into paying a $5 fee for legal protections — protections that they already have — in order to get financing, as a result of an enforcement action by the Consumer Financial Protection Bureau.

The retailer, USA Discounters, will mail checks to eligible customers for $5 plus interest. For troops whose loans are in collection, the $5 plus interest will be deducted from the debt. The restitution must be made within 90 days under the terms of the consent order, said CFPB spokesman Sam Gilford.

The CFPB estimates that USA Discounters charged the $5 fee on more than 70,000 contracts since 2009, generating more than $350,000 from the fees.

The number of troops affected is not known, Gilford said, because it's likely that some customers had multiple contracts. Those who did will receive restitution for each contract. USA Discounters also will pay a $50,000 penalty to CFPB, and can no longer market those contracts as a benefit to troops.

"USA Discounters charged service members for legal protections they were already entitled to, and for services that were never actually provided," CFPB Director Richard Cordray said in a statement announcing the action. "Targeting service members with scams disguised as legal benefits is unconscionable, and we will not allow this injustice to continue."

USA Discounters' vice president Timothy W. Dorsey objected to the CFPB's use of the terms "scam" and "tricked" in its announcement about the enforcement action.

"The CFPB performed an exhaustive, year-long review of the company's policies and procedures and we fully cooperated with its inquiry," Dorsey said, in an email statement. "Not once did the CFPB in any official document state that this company 'scammed' or 'tricked' service members and we strongly object to such inflammatory characterizations.

"The company made absolutely no profit, and in fact lost money, in connection with the fees in question," he said.

The company operates a chain of retail stores around the country, generally within a few miles of military bases, that sell furniture, electronics, bedding and appliances.

USA Discounters claimed that for the $5 fee customers were required to pay in conjunction with financing, a company called SCRA Specialists would represent them with regards to their rights under the Servicemembers' Civil Relief Act — being available to receive lawsuits filed by USA Discounters, notifying the company of troops' change of address, and verifying their military status to determine if they were eligible for protection under the SCRA.

"These services were characterized as a benefit to service members, but they only helped USA Discounters sue service members" who fell behind on their credit payments, the CFPB alleged. "In addition, many of the services were never actually performed."

One of the provisions of the SCRA is that a court may delay collection lawsuits filed against a service member if the court determines that the member's military duties make it difficult to defend himself or herself. Military attorneys are familiar with these laws and can help troops follow the proper procedures to ask the court for a delay.

CFPB alleged that USA Discounters misrepresented SCRA Specialists as an independent company working on behalf of troops, when its sole source of income was through USA Discounters.

USA Discounters' Dorsey said the company has already severed ties with the third-party vendor, and is refunding the related previously charged fees. It has eliminated those fees for new transactions.

"USA Discounters is proud of the company's 20-year history serving the military and we welcome the opportunity to address any questions or concerns from governing authorities about the company and, in particular, its relationship and dealings with those serving our country," Dorsey said.