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.
