The Servicemembers Civil Relief Act exists to protect military personnel, who are often among the most vulnerable to questionable financial practices. This law requires lenders to perform an active duty military search before attempting to pursue collection strategies that go beyond the level of just asking. At least one company, however, seems to have found a hole in the SCRA law — a way to obey the letter of these rules while skirting the meaning behind the legislation.
USA Discounters, a big box store and lender that caters to the military demographic, has filed more than 13,470 lawsuits since 2006 against servicemembers all over the world, according to court records cited by ProPublica. It almost always wins.
Higher Prices & Fees
While the name of the chain suggests that the goods sold inside are more affordable than those sold elsewhere, some items are significantly more expensive. An iPad Mini at USA Discounters sold for $699 in 2013. The Apple Store was charging $329 around the same time.
The appeal of USA Discounters has more to do with its guaranteed finance offer. Financing is difficult to come by for many new active servicemembers who may not yet have access to credit elsewhere.
A USA Discounters executive defended his company’s practices. He told ProPublica that the cost of purchasing goods was higher for USA Discounters than for other big-box retailers. He explained that they clearly mark the add-on loan products, such as warranty programs and a program that cancels the debt under certain circumstances, as extras. The company’s average interest rate is less than 20 percent, the executive said.
Hole in SCRA Leaves Servicemembers Unprotected
The SCRA is intended to provide servicemembers with the opportunity to defend themselves in court. But it doesn’t specify where plaintiffs must sue. This hole in the SCRA law has allowed USA Discounters to successfully sue servicemembers in Virginia by including a clause in the contracts. The clause states lawsuits will be filed in Virginia, regardless of where the servicemember is stationed, according to the news source.
The SCRA generally requires a 90-day delay in lawsuits for which servicemembers cannot attend due to their service. If they don’t appear, the court must appoint an attorney to represent the defendant. However, there is no specification as to what that attorney must do, or who they should be.
Virginia courts interpreted this to mean that the creditor can suggest which attorney the court should appoint, according to ProPublica. USA Discounters appears to suggest the same attorney for every case involving a servicemember.
That attorney told the news source that he represents between 300 and 400 servicemembers every year. For his $35 fee, he sends each client an identical letter. The letter advises them of their right to have their case delayed under the SCRA if they cannot appear. The attorney, however, often allows cases to proceed.
Once this happens, USA Discounters can pursue wage garnishments. They can even seize assets from servicemembers’ accounts.
Courts can continue to enforce judgments for decades in Virginia. And USA Discounters sometimes pursues debts for years — even against retired or deceased servicemembers, according to ProPublica.
Avoid Investigations — Follow the Law
Because of situations like this, there is increasing scrutiny of lenders seeking to collect from military personnel. This should highlight the importance to all lenders of performing an active duty military search. Even non-predatory lenders who mistakenly pursue collections against active duty servicemembers without performing the proper steps can be penalized and fined under the SCRA.