Feds shut down "scam" targeting U.S. soldiers

A retail chain that operates stores near military bases was fined $50,000 by the Consumer Financial Protection Bureau (CFPB) and must refund $350,000 to U.S. service members who were duped into paying unnecessary fees, the federal agency said on Thursday.

USA Discounters charged military personnel a $5 fee for debt protection under the Servicemembers Civil Relief Act (SCRA). Such fees are unnecessary because service members already are protected under the law, including safeguards against debt collection for those who can't make it to court to defend themselves because of their duties. The fee was administered in 70,000 transactions since 2009, the CFPB said.

"Today we shut down USA Discounters' fee scam that was designed to exploit unsuspecting service members," CFPB Director Richard Cordray said in a statement. "USA Discounters charged service members for legal protections they were already entitled to, and for services that were never actually provided. Targeting service members with scams disguised as legal benefits is unconscionable, and we will not allow this injustice to continue."

USA Discounters -- which was recently the subject an expose by The Washington Post and ProPublica.org about the chain's propensity for giving credit to service members and then suing them -- must refund customers for the $5 fees it charged, plus interest.

The fee was paid to a company called SCRA Specialists, with USA Discounters pocketing 10 percent, the CFPB said. SCRA Specialists was ostensibly an independent outfit whose role included collecting information about the service members for their protection under the law. Instead, that information was used to help sue them, the agency said. SCRA Specialists' only income was from USA Discounters' customers.

USA Discounters denies that it sought to mislead customers and says that it cooperated with the CFPB's investigation.

"Not once did the CFPB in any official document state that this company 'scammed' or 'tricked' service members, and we strongly object to such inflammatory characterizations by its press office," said Timothy Dorsey, vice president of USA Discounters, in a statement.

The company said it has severed ties with SCRA Specialists and, along with refunding the legal fees, is eliminating such charges for new transactions.

  • Mitch Lipka On Twitter» On Facebook»

    Mitch Lipka is an award-winning consumer columnist. He was in charge of consumer news for AOL's personal finance site and was a senior editor at Consumer Reports. He was also a reporter for The Philadelphia Inquirer and the South Florida Sun-Sentinel, among other publications.

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