CFPB cracks down on service member 'scam'

The Consumer Financial Protection Bureau fined a retailer for selling service members protections granted by the law and failing to provide other promised services.

The regulator announced Thursday that it had fined USA Discounters $350,000 for unfair and deceptive practices against active members of the military.

“Today we shut down USA Discounters’ fee scam that was designed to exploit unsuspecting servicemembers,” said CFPB Director Richard Cordray. “Targeting servicemembers with scams disguised as legal benefits is unconscionable, and we will not allow this injustice to continue.”

Specifically, the agency said the retail chain tricked thousands of service members into buying what they believed was independent protection by paying a $5 fee to what was billed as a separate company that specializes in debt collection protections for service members

In reality, active members of the military are already guaranteed certain debt protections under the law, such as delaying debt collection lawsuits and collections. Those fees constituted the only revenue received by that separate company, and the services provided would only help USA Discounters pursue legal challenges against military members who fell behind on payments.

Furthermore, the CFPB said the company rarely provided additional benefits advertised. The company is now barred from marketing such contracts and fees, and must pay more than $350,000 in restitution, plus a $50,000 penalty.

However, a vice president with the company strongly disagreed with the CFPB's assertion it was operating a "scam." Rather, he said the company actually lost money in that fee arrangement, and has already terminated a contract with a third party vendor on the matter.

"It is patently false to assert that the company charged fees for ‘benefits that are available for free’ or for ‘legal protections they were already entitled to,'" said Timothy Dorsey. "USA Discounters is proud of the company's 20 year plus history serving the military and we welcome the opportunity to address any questions or concerns from governing authorities about the company and, in particular, its relationship and dealings with those serving our country."

The Virginia-based company specializes in providing services to service members and their families, and most of their shops are within a few miles of a military base, according to the CFPB. It actively advertises to those with poor credit or no credit, and guarantees credit approval for military and government employees to purchase their products.

The CFPB action comes after a ProPublica report found that USA Discounters regularly sued service members for missed payments in a Virginia court, even if those members were on active duty halfway across the world. 

This post updated Aug. 18 at 8:06 am.