How to Swindle Soldiers

Flickr user Mike Kalasnik

Well, here is a clever new business strategy: Offer service members around the country and around the world financing for their appliances, furniture, and electronics, and then, when they fall behind on their loans, sue them in courts they can't get to to represent themselves.

Turns out: effective! Also: legal.

These are the conclusions of a new report jointly published by ProPublicaand The Washington Post that looks at the financial "innovation" of USA Discounters and two other companies, Freedom Furniture and Electronics and Military Credit Services, that sell goods to service members on credit and then, if they fall behind, go after them in Virginia courts, regardless of where the service members are based. Together the three companies have filed 35,000 lawsuits in a little under a decade. 

As Paul Kiel of ProPublica explains:

The federal Servicemembers Civil Relief Act, or SCRA, was designed to give active-duty members of the armed forces every opportunity to defend themselves against lawsuits. But the law has a loophole; it doesn't address where plaintiffs can sue. That's allowed USA Discounters to sue out-of-state borrowers in Virginia, where companies can file suit as long as some aspect of the business was transacted in the state.

For service members who don't appear in Virginia, a lawyer is appointed on their behalf. "But," Kiel writes, "the law does not specify what that lawyer must do." ProPublica found that in each of the 11 cases it examined, the same lawyer was selected as the defendant's representative, and he seems to have made minimal efforts on his clients' behalf. USA Discounters denied any "business relationship" with the attorney.

That USA Discounters' strategy lines up so perfectly with the SCRA loophole is, presumably, no accident. As John Odom, whom Kiel identifies as an expert on the SCRA, observes, "This looks like somebody who has really, really researched the best way to get around the entire intent of the SCRA."

When USA Discounters wins a judgment, which ProPublica says has been the case in 89 percent of the lawsuits, "the company can begin the process of garnishing the service member's pay."

"USA Discounters seizes the pay of more active-duty military than any company in the country," Kiel adds. In January of this year, "230 service members were involuntarily paying USA Discounters a portion of their pay," the total of which ran over $1.4 million.

Part of the reason for the extremely high total is the expensive nature of USA Discounters' credit. To begin with, ProPublica reports, despite its branding, USA Discounters often charges far more than typical retail prices for its goods. "An iPad Mini, for example, last year sold at USA Discounters for $699 when Apple's retail price was $329." One soldier, Army Pvt. Jeramie Mays, bought a $650 laptop for $1,799, plus "$458 in add-ons." By the time he would have paid off his two-year contract, that $650 laptop would have cost him nearly $3,000.

Then, while he was in Iraq, the computer broke (of course). He stopped making his payments. And then this is what happened:

USA Discounters brought suit against him while he was in Germany. After winning a judgment, he said, the company sought to seize both his pay and funds in his credit union account. The action froze his account for several weeks, Mays said.

Mays, currently based at Joint Base Lewis-McChord in Washington state, said that for most of last January, he could not withdraw funds. "Trying to take care of two kids and my mother and myself on nothing doesn't help," he said. Around the same time, he finally filed for bankruptcy. His debt with USA Discounters was discharged last March, protecting any assets from seizure.

As with any sort of credit, if you don't pay your bills, you're going to find yourself in a mess. What's troubling about USA Discounters' model is the absence of meaningful legal recourse available to these service members. As Carolyn Carter of the National Consumer Law Center tells Kiel, it's "designed to obtain default judgments against consumers without giving them any real opportunity to defend themselves."

(Image via Flickr user Mike Kalasnik)

Stay up-to-date with federal news alerts and analysis — Sign up for GovExec's email newsletters.
FROM OUR SPONSORS
JOIN THE DISCUSSION
Close [ x ] More from GovExec
 
 

Thank you for subscribing to newsletters from GovExec.com.
We think these reports might interest you:

  • Sponsored by Brocade

    Best of 2016 Federal Forum eBook

    Earlier this summer, Federal and tech industry leaders convened to talk security, machine learning, network modernization, DevOps, and much more at the 2016 Federal Forum. This eBook includes a useful summary highlighting the best content shared at the 2016 Federal Forum to help agencies modernize their network infrastructure.

    Download
  • Sponsored by CDW-G

    GBC Flash Poll Series: Merger & Acquisitions

    Download this GBC Flash Poll to learn more about federal perspectives on the impact of industry consolidation.

    Download
  • Sponsored by One Identity

    One Nation Under Guard: Securing User Identities Across State and Local Government

    In 2016, the government can expect even more sophisticated threats on the horizon, making it all the more imperative that agencies enforce proper identity and access management (IAM) practices. In order to better measure the current state of IAM at the state and local level, Government Business Council (GBC) conducted an in-depth research study of state and local employees.

    Download
  • Sponsored by Aquilent

    The Next Federal Evolution of Cloud

    This GBC report explains the evolution of cloud computing in federal government, and provides an outlook for the future of the cloud in government IT.

    Download
  • Sponsored by Aquilent

    A DevOps Roadmap for the Federal Government

    This GBC Report discusses how DevOps is steadily gaining traction among some of government's leading IT developers and agencies.

    Download
  • Sponsored by LTC Partners, administrators of the Federal Long Term Care Insurance Program

    Approaching the Brink of Federal Retirement

    Approximately 10,000 baby boomers are reaching retirement age per day, and a growing number of federal employees are preparing themselves for the next chapter of their lives. Learn how to tackle the challenges that today's workforce faces in laying the groundwork for a smooth and secure retirement.

    Download
  • Sponsored by Hewlett Packard Enterprise

    Cyber Defense 101: Arming the Next Generation of Government Employees

    Read this issue brief to learn about the sector's most potent challenges in the new cyber landscape and how government organizations are building a robust, threat-aware infrastructure

    Download
  • Sponsored by Aquilent

    GBC Issue Brief: Cultivating Digital Services in the Federal Landscape

    Read this GBC issue brief to learn more about the current state of digital services in the government, and how key players are pushing enhancements towards a user-centric approach.

    Download
  • Sponsored by CDW-G

    Joint Enterprise Licensing Agreements

    Read this eBook to learn how defense agencies can achieve savings and efficiencies with an Enterprise Software Agreement.

    Download
  • Sponsored by Cloudera

    Government Forum Content Library

    Get all the essential resources needed for effective technology strategies in the federal landscape.

    Download

When you download a report, your information may be shared with the underwriters of that document.