On September 30, 2016 ProPublica reported on a settlement between a coalition of attorneys general representing 49 states and the District of Columbia and USA Discounters, requiring USA Discounters to pay $40 million in penalties and wipe out more than $95 million in debt for its past customers. The penalties and debt relief in the settlement cover every state except Colorado. The state of Colorado settled separately with the company. A copy of the Settlement Agreement can be found here.

USA Discounters admitted no wrongdoing as part of the settlement. The company shut down all of its stores last year, but continues to collect on loans made before it filed for bankruptcy.

The settlement was reported elsewhere, but the Propublica coverage is most appropriate, as ProPublica published its investigation of USA Discounters in 2014.

As noted in the September 30th news article:

“The states accused the company of a laundry list of abuses that encompass virtually every aspect of its transactions. The company misled customers about the quality and price of its merchandise, the terms of loan contracts, and its warranty and debt cancellation products, the states claimed. Then came aggressive debt collection, including calls to soldiers’ chain of command when they fell behind and the lawsuits flowing through that Virginia court.

Similar complaints surfaced in ProPublica’s 2014 report. One Army private bought a laptop at the company’s store near Fort Bliss in Texas shortly before shipping out for Iraq. For a model that typically retailed for $650, he agreed to pay almost $3,000. After he fell behind on his payments, he was sued in Virginia while stationed in Germany. The company later sought to seize his military pay and froze his credit union account.”

Both of the above articles were written by Paul Kiel, who covers consumer finance for ProPublica. Recently, his focus has been on debt collection and high-cost lending. His work in 2013 was honored as a finalist for both a Gerald Loeb Award and a Best in Business award from the Society of American Business Editors and Writers. insideARM provided a summary or prior Kiel articles on debt collection and high cost lending in an article we published on April 28, 2016.

On the same day as the announcement of the USA Discounters settlement, the Consumer Financial Protection Bureau (CFPB) issued a press release indicating that they had updated exam procedures for the Military Lending Act. The exam procedures were released by the Bureau to provide guidance to the industry on what the CFPB will be looking for during reviews covering the amended regulation.

“Protecting servicemembers is a priority for the CFPB,” said CFPB Director Richard Cordray. “The updated exam procedures being released today will help ensure that servicemembers and their families are dealt with in a fair and safe manner when attempting to access credit.”

In 2006, Congress passed the Military Lending Act to help address the problem of high-cost credit as a threat to military personnel and readiness. In July 2015, the Department of Defense issued a final rule expanding the types of credit products that are covered under the protections of the Military Lending Act. The protections provided by the Military Lending Act extend to active-duty servicemembers (including those on active Guard or active Reserve duty) and covered dependents. When lending to servicemembers and their dependents creditors must abide by the following requirements:

  • A 36 percent rate cap: Creditors cannot charge servicemembers or their covered dependents more than a 36 percent Military Annual Percentage Rate, which generally includes the following costs (with some exceptions): finance charges, credit insurance premiums or fees, add-on products sold in connection with the credit extended, and other fees such as application or participation fees.
  • No mandatory waivers of consumer protection laws: Creditors cannot require servicemembers or their covered dependents to submit to mandatory arbitration or give up certain rights under state or federal law, such as the Servicemembers Civil Relief Act.
  • No mandatory allotments: Creditors cannot require servicemembers or their covered dependents to create a voluntary military allotment in order to qualify for a loan.

A copy of the Department of Defense’s Military Lending Act rule can be found here.

A copy of the new CFPB Military Lending Act Exam Procedures can be found here.

insideARM Perspective

While both of these announcements are about creditors and creditor practices when dealing with lending and collecting debt of military personnel, the entire ARM industry should pay close attention. The distinction between rules for creditors and rules for collection agencies is rapidly blurring. insideARM suggests that collection agencies download and incorporate appropriate provisions from The Military Lending Act, The Department of Defense Military Lending Act Rule, and the CFPB Exam Procedures into their Compliance Management System and internal policies and procedures. 

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