Five U.S. senators have urged the Department of Defense and the Consumer Financial Protection Bureau to investigate allegations that "aggressive debt collection actions" are being used by USA Discounters and similar retailers against active-duty servicemembers.
In a letter sent Tuesday, the senators cited a ProPublica investigation of USA Discounters co-published last month with the Washington Post. The story detailed how the company courts servicemembers, guaranteeing them credit on high-priced appliances and electronics, then sues them in Virginia if they fall behind on their payments, regardless of where they made their purchases.
If the servicemembers do not show up in court, USA Discounters obtains a judgment and can garnish their wages. Department of Defense payroll data shows USA Discounters seizes the wages of more servicemembers than any other company in the country by a substantial margin.
Although the company has locations from Georgia to Washington state, it uses a clause in its contracts with servicemembers to file lawsuits in Virginia courts. USA Discounters and two other military-focused retailers, all headquartered in the Hampton Roads area of Virginia, have filed more than 35,000 suits since 2006 in two local courts.
Active-duty servicemembers are supposed to be protected from potentially unfair lawsuits by the federal Servicemembers Civil Relief Act, or SCRA, but the act has a loophole. It doesn't address where plaintiffs can sue, allowing USA Discounters to sue out-of-state borrowers in Virginia, where companies can file suit as long as some aspect of the business was transacted in the state.
In their letter, the senators urged Defense Secretary Chuck Hagel and Richard Cordray, director of the Consumer Financial Protection Bureau, to "fully investigate these claims and educate our servicemembers about their rights and the debt collection practices used by these retailers." The letter was signed by Sens. Jeanne Shaheen, D-N.H., Tim Kaine, D-Va., Richard Blumenthal, D-Conn., and Jack Reed, D-R.I., who are all members of the Armed Services Committee, and Sen. Mark Warner, D-Va.
"In addition," the senators wrote, "we encourage you to determine whether there are any actions we can take to ensure due process for our servicemembers, especially the practice of including contractual provisions that may limit servicememberscq' ability to defend themselves while they are on active duty."
The consumer bureau has authority to enforce federal consumer protection laws and could bring suit if it determined the companies have violated any of them.
ProPublica's investigation was also referenced in a separate letter sent by the senators last week to the Department of Defense. In that letter, the senators criticized the department for taking too long to complete a review of the military's pay allotment system. USA Discounters' loans are almost always paid via allotment, ProPublica found, with part of the servicemember's paycheck automatically going to the company every month. The department announced a review of the allotment system in June 2013, with particular focus on possible abuses, but still has not produced a report.