Justice Department officials have reached an agreement with a Texas-based furniture and appliance company over allegations the company violated federal law by charging at least 185 service members too much interest on their purchases.
Conn Appliances, Inc. is accused of violating the Servicemembers Civil Relief Act by failing to provide the full benefit of reducing the military members' interest rate to 6 percent, after they requested it. Under the SCRA, service members can request a reduction of their interest rate to 6 percent annual percentage rate, on money they borrowed before they entered military service.
This is the first SCRA case brought by the Justice Department against a consumer retail store, according to the Justice Department’s announcement of the case. The lawsuit and proposed settlement agreement were filed in federal court in Houston Sept. 15.
Conn Appliances, Inc., Conn Credit I, LP and Conn’s Inc. are named as defendants in the lawsuit. The Conn’s defendants operate retail stores in more than 130 locations in at least 14 states. The stores also operate under the name Conn’s HomePlus. They have voluntarily refunded the excess interest to the affected service members, and agreed to pay an additional $500 to each one, according to the proposed settlement agreement, which must be approved by the court.
The portion of the SCRA applying to the 6 percent reduction in interest applies to members of the Reserve and Guard components who are called to active duty, as well as to service members who took out loans before joining the military as active duty members.
In one case detailed in the lawsuit, Sgt. Travon Sargent, a member of the Oklahoma National Guard, was put on “early alert” status on May 2, 2018. Three years earlier, Sargent had bought a computer and a dining room set, entering into a retail installment contract with Conn Appliances, Inc. to finance the purchase, at an interest rate of 21 percent. On May 5, 2018, he provided a written notice to Conn Appliances, asking that his interest rate be reduced to 6 percent, and two days later provided a copy of his military orders. On July 27, 2018 a customer service representative told Sargent’s wife during a telephone call that their monthly payment hadn’t been changed. Sargent’s wife struggled to pay the original monthly payment of $208.01 during his deployment, and missed the August and September payments, according to the lawsuit.
The company charged an extension fee of $189.28 to increase the term of Sargent’s loan by two months and bring the account current. That fee is considered to be “interest” under the SCRA and imposing the fee violates the SCRA, the lawsuit alleges. In October, 2018, the interest rate was reduced to 6 percent, but it was applied only dating back to June 29, 2018, the date that Sargent entered active duty. Under the SCRA, his first day of SCRA eligibility was when he was put on “early alert” status on May 2, according to the lawsuit.
Under the agreement, the Conn defendants neither admit nor deny the allegations. The agreement also states: “The Conn defendants assert that they had no specific intent to violate the SCRA or to increase profits, and had no wrongful motive.”
In a statement provided to Military Times, Conn’s company officials said, “In this particular instance, we undertook an opportunity to address the situation and enhance our training and processes to meet the expectations for our service member customers. As a result, we have implemented increased training protocols and we are providing each of the affected service member customers with $500, in addition to crediting the difference on their accounts.”
In an announcement of the agreement, Assistant Attorney General Eric Dreiband of the Civil Rights Division said Justice officials “applaud Conn’s for cooperating with our investigation and conducting a self-audit to determine the scope of the problem, for working with the department to comply with the Servicemembers Civil Relief Act, and for agreeing to compensate all the affected service members.”
Justice officials launched their investigation after receiving notice about Sargent’s case from the Army staff judge advocate at Oklahoma National Guard Joint Force headquarters. According to the proposed settlement, after Conn’s was notified by Justice officials about the investigation, the company conducted an internal review of their contracts, and “self-identified” 185 accounts with errors regarding their application of the SCRA in reducing rates, from March 22, 2014 through May 31, 2019. They voluntarily issued a combined total of $59,216 in refund checks to service members, and $28,587 in account credits to service members whose accounts weren’t properly serviced in line with SCRA requirements, according to the proposed settlement. Those 185 accounts represented 57 percent of the 322 eligible service members who requested the SCRA benefits.
The company will also make a $50,000 payment to the U.S. Treasury.
A variety of other alleged violations occurred, such as informing service members that the interest rate wouldn’t be lowered until the service member was ready to pay off the account; or telling the service members they were required to make the same payment but more of the payment would go to pay off the principal of the loan earlier.
Under the agreement, Conn’s will hire an independent consultant who will determine if any previously unidentified service members were overcharged.
Karen has covered military families, quality of life and consumer issues for Military Times for more than 30 years, and is co-author of a chapter on media coverage of military families in the book "A Battle Plan for Supporting Military Families." She previously worked for newspapers in Guam, Norfolk, Jacksonville, Fla., and Athens, Ga.