The CPFB has ordered credit and retail company USA Discounters to refund fees it wrongly charged servicemembers. As part of an SCRA fraud scheme, the affected servicemembers paid for benefits already available to them under the Servicemembers Civil Relief Act.
The company operates a chain of retail and lending stores targeting servicemembers. The Consumer Finance Protection Bureau said the company engaged in predatory practices, taking advantage of a loophole in the SCRA. They put an end to the SCRA fraud scheme by ordering the company to stop charging these fees and to pay back the money, plus interest.
“Today we shut down USA Discounters’ fee scam that was designed to exploit unsuspecting servicemembers,” said CFPB Director Richard Cordray. “USA Discounters charged servicemembers for legal protections they were already entitled to, and for services that were never actually provided. Targeting servicemembers with scams disguised as legal benefits is unconscionable, and we will not allow this injustice to continue.”
Basis of the SCRA Fraud Scheme
USA Discounters charged servicemembers a fee of $5 in more than 70,000 contracts. The contract said the fee went to a company called SCRA Specialists LLC., which it said protected servicemembers’ SCRA rights, according to the CFPB.
USA Discounters claimed SCRA Specialists was an independent entity that would receive notices of lawsuits filed against servicemembers. They said the company would also provide a military status affidavit and notify USA Discounters of any changes in servicemembers’ addresses.
The CFPB found three essential elements of this SCRA fraud scheme that it characterized as unfair and deceptive:
- Marketing its legal obligation as a service — Many of these “services” were actually USA Discounters’ legal responsibility, in the event that it wanted to sue a servicemember. These responsibilities include locating the servicemember, performing a military service verification and sending notice to the defendant.
- Misleading servicemembers about their representative’s independence — On paper, USA Discounters and SCRA Specialists were two separate companies. But the CFPB determined that all of the latter company’s business consisted of customers of the former. Further, the services SCRA Specialists performed primarily benefited USA Discounters.
- Failing to provide services — The CFPB also determined that in many cases, USA Discounters never performed the services they promised to active military status borrowers.
Government Levies Fines & Penalties
The CFPB can take action against institutions and individuals it believes are engaging in unfair, deceptive or abusive practices under the Dodd-Frank Wall Street Reform and Consumer Protection Act. The CPFB ordered USA Discounters to:
- Stop charging for SCRA protections — USA Discounters can no longer charge a fee for SCRA-related services. It also cannot market contracts as a benefit to servicemembers. Further, they can no longer claim that SCRA Specialists is an independent organization.
- Provide $350,000 in refunds — The company must return the $5 fee to each customer. They can either knock the amount off their debt or mail them a check for $5, plus interest.
- Pay a civil penalty — USA Discounters also has to pay a $50,000 penalty to the CFPB’s Civil Penalty Fund.
The fine for perpetrating this SCRA fraud scheme, and the potential for further fines and penalties, serves to highlight the importance of obeying the letter and spirit of the SCRA. The Servicemembers Civil Relief Act Centralized Verification Service helps companies accomplish this with easy military status verification.