The Servicemembers Civil Relief Act exists to protect military personnel, who are often among the most vulnerable to shady financial practices, from exploitation and unfair penalties resulting from their service. Under this law, lenders are required 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 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.
Hooked on finance
While the privately owned USA Discounters doesn’t lend exclusively to members of the armed forces, it has locations near each of the 11 largest military bases in the U.S., ProPublica explained. Its ads read, “NO CREDIT? NEED CREDIT? NO PROBLEM!” and, “Military Automatically Approved.”
While the name of the chain suggests that the goods sold inside are more affordable than those sold elsewhere, some items are significantly marked up. An iPad Mini at USA Discounters sold for $699 in 2013 – a bad deal compared to the $329 price tag found in the Apple store around the same time. Army Pvt. Jeramie Mays told the news source that he purchased a laptop at the store for $1,799, plus $561 in interest charges and $458 in loan add-on products. The same laptop retailed for $650.
The appeal of USA Discounters has little to do with its “discounts,” then, and more to do with its guaranteed finance – 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, telling ProPublica that the cost of purchasing goods was higher for USA Discounters than for other big-box retailers. He explained that the add-on loan products, like warranty programs and a program that cancels the debt under certain circumstances, are clearly marked as extras. The company’s average interest rate is less than 20 percent, the executive said.
Regardless, once a servicemember falls behind on his or her debt, USA Discounters’ efficient debt-collection machine springs into action.
Reeling them in
Though the Servicemembers Civil Relief Act is intended to provide servicemembers with the opportunity to defend themselves in court, it doesn’t specify where plaintiffs must sue. This means that USA Discounters has been able to successfully complete its lawsuits against service personnel in Virginia by including a clause in the loan contracts stating that this is where any lawsuit will take place, regardless of where the military member is stationed, according to the news source.
Under the SCRA, a 90-day delay of proceedings is generally required in a lawsuit for which a servicemember is prevented from attending by his or her service. If he or she then doesn’t appear in court, an attorney must be appointed to represent the defendant. However, there is no specification as to what that attorney must do, or who he or she should be.
Virginia courts have interpreted this to mean that the creditor can suggest which attorney should be appointed, according to ProPublica. Unsurprisingly, USA Discounters appears to suggest the same attorney for every case involving a servicemember – Tariq Louka of Virginia Beach.
Louka told the news source that he represents between 300 and 400 servicemembers every year. For his $35 dollar fee, Louka sends each client an identical letter that advises them of their right to have their case delayed under the SCRA if they cannot appear.
A separate article by ProPublica reported that servicemembers who respond to the letter still receive little real representation from Louka. Army Staff Sgt. David Ray wrote to the attorney, stating that he had “exercised ALL directions for restitution to the Plaintiff following their instructions to the letter,” and that due to military missions and necessity and under the provisions of the SCRA, all matters should be indefinitely postponed.
Louka wrote that he was of the opinion that no further continuance was warranted, meaning that the case was free to proceed.
Making the catch
Once the court agrees to proceed with the case, USA Discounters is allowed to pursue wage garnishments and even seize assets from servicemembers’ accounts. Court judgments on debts can continue to be enforced for decades in the state of Virginia, and USA Discounters sometimes pursues debts for years – even against retired or deceased servicemembers, according to ProPublica.
Because of lenders like USA Discounters, 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, as 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.