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The CFPB wins a battle for military members

Three companies agreed to pay $2.5 million in refunds to military members who allegedly were targeted in an illegal debt collection scheme, the Consumer Financial Protection Bureau said on Thursday.

The CFPB said the action, taken in conjunction with the attorneys general of North Carolina and Virginia, also included a $100,000 penalty against the companies: Freedom Stores, Freedom Acceptance Corp. and Military Credit Services.

The companies were accused of filing illegal lawsuits, debiting accounts without permission and contacting service members' commanding officers. (Freedom Stores' comment, received after the story was published, appears below.)

"Our nation's service members deserve better than to be targeted with illegal collections tactics when they are struggling to pay their bills," CFPB Director Richard Cordray said in a statement. "Freedom Stores and its affiliated companies were filing thousands of lawsuits in Virginia against consumers not from there, taking money from some consumers' bank accounts without permission, and using the military chain of command to pressure and humiliate service members. Today's action sends a clear message that the Consumer Bureau will continue to aggressively defend the rights of service members and all consumers."

Virginia-based Freedom Stores (which is also called Freedom Furniture and Electronics) sells mainly to military members through stores around the country located near military bases, the CFPB said. Freedom Acceptance Corp. and Military Credit Services are related companies that provide financing.

The CFPB said the companies illegally filed more than 3,500 lawsuits in Virginia against consumers who did not live there or sign a financing contract there. Because the defendants were not in the area, most cases resulted in a default judgment in favor of the companies and led to wage garnishment and liens.

Another issue that arose was when a friend or family member would authorize a one-time payment to pay a bill. The companies then continued to draw funds from those accounts without approval, the CFPB said.

Another scheme operated by stores near military bases resulted in a $50,000 fine and $350,000 in refunds this summer.

The following statement was provided by Freedom Stores:

"The CFPB has had a special focus on companies that operate in the military community since its 2011 founding, which led to the inquiry regarding Freedom Stores. We support the Bureau's efforts to root out bad actors in this space, but by the CFPB's own admission, the complaint against Freedom Stores, 'is not a finding or ruling that the defendants have actually violated the law.'

"Regardless, Freedom Stores has voluntarily agreed to forgive more than two million dollars in loans and provide more options regarding where default litigation will be conducted. In addition, we are redoubling our efforts to educate customers on money management fundamentals through our online MoneySKILL course. More than 1000 customers have already completed the course, receiving a $100 Freedom Store gift card. In 2015, we have set the goal of 5000. We have also put new safeguards in place to ensure customers are charged for loan payments only as expected and will be creating a blue ribbon internal advisory board of former military personnel and other experts who will help guide our policies. We are proud to make these changes to ensure we are providing the highest level of service to our customers.

"Freedom Stores is a family-owned business that has proudly served the needs of those who serve in uniform for more than 31 years. Approximately half of our employees are spouses of military personnel or retired from the military, so we are especially sensitive to their needs. We intend to continue to set the standard for excellence in all we do. We are honored to meet the needs of those who serve."

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