Thank You for Your Service: How One Company Sues Soldiers Worldwide

by Paul Kiel ProPublica, July 25, 2014, 11 a.m.

This article was co-published with The Washington Post.

Army Spc. Angel Aguirre needed a washer and dryer.

Money was tight, and neither Aguirre, 21, nor his wife had much credit history as they settled into life at Fort Carson in Colorado in 2010.

That’s when he saw an ad for USA Discounters, guaranteeing loan approval for service members. In military newspapers and magazines, on the radio, and on TV, the Virginia-based company’s ads shout, “NO CREDIT? NEED CREDIT? NO PROBLEM!” The store was only a few miles from Fort Carson.

“We ended up getting a computer, a TV, a ring, and a washer and dryer,” Aguirre said. “The only thing I really wanted was a washer and dryer.”

Aguirre later learned that USA Discounters’ easy lending has a flip side. Should customers fall behind, the company transforms into an efficient collection operation. And this part of its business takes place not where customers bought their appliances, but in two local courthouses just a short drive from the company’s Virginia Beach headquarters.

From there, USA Discounters files lawsuits against service members based anywhere in the world, no matter how much inconvenience or expense they would incur to attend a Virginia court date. Since 2006, the company has filed more than 13,470 suits and almost always wins, records show.

“They’re basically ruthless,” said Army Staff Sgt. David Ray, who was sued in Virginia while based in Germany over purchases he made at a store in Georgia.

Timothy Dorsey, vice president of USA Discounters, said the company provides credit to service members who would not otherwise qualify and sues only after other attempts to resolve debts have failed.

As for the company’s choice of court, he said it was “for the customer’s benefit.” In Virginia, the company isn’t required to use a lawyer to file suit. USA Discounters’ savings on legal fees are passed on to the customer, he said.

“This company is committed to ensuring that the men and women who serve and sacrifice for our country are always treated with the honor and respect they deserve,” Dorsey said.

The federal Servicemembers Civil Relief Act, or SCRA, was designed to give active-duty members of the armed forces every opportunity to defend themselves against lawsuits. But the law has a loophole; it doesn’t address where plaintiffs can sue. That’s allowed 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.

The company routinely argues that it meets that requirement through contract clauses that state any lawsuit will take place in Virginia. Judges have agreed.

“This looks like somebody who has really, really researched the best way to get around the entire intent of the SCRA,” said John Odom, a retired Air Force judge advocate and expert on the SCRA.

Once a judge awards USA Discounters a judgment, the company can begin the process of garnishing the service member’s pay. USA Discounters seizes the pay of more active-duty military than any company in the country, according to Department of Defense payroll data obtained by ProPublica.

Consumer advocates say the strategy cheats service members who may have valid defenses. It’s “designed to obtain default judgments against consumers without giving them any real opportunity to defend themselves,” said Carolyn Carter of the National Consumer Law Center.

To investigate USA Discounters’ practices, ProPublica reviewed 70 of the company’s contracts for service members and non-military borrowers, all of which had been filed in court. A reporter also identified 11 recent court cases against active-duty service members to examine their treatment.

The same courts in Norfolk and Virginia Beach are favored by two similar companies headquartered in the area – Freedom Furniture and Electronics and Military Credit Services – that offer high-priced credit to military clientele. Together with USA Discounters, the three companies have filed more than 35,000 suits since 2006.

Officials with Freedom and Military Credit Services did not respond to repeated phone calls and e-mails.

USA Discounters opened its first store in 1991 in the Hampton Roads metropolitan area, where more than 70,000 military personnel are stationed.

Many sailors start their careers at the sprawling Naval Station Norfolk, “bringing their pay and their naiveté,” said Dwain Alexander, a senior civilian attorney with the Navy in Norfolk.

USA Discounters, which is privately owned, now has 31 locations, including seven free-standing jewelry stores that go by the name Fletcher’s Jewelers.

While the company does not exclusively lend to service members, it has a location just a short drive from each of the country’s 11 largest military bases.

The company’s showrooms are packed with bedroom sets, TVs and tire rims, but that’s not the main draw. “You’re not selling the furniture. You’re not selling the appliances,” said one former sales employee. “You’re selling our financing program.” The former employee, and others quoted in the story, spoke on condition of anonymity because they feared USA Discounters could adversely affect future employment.

Younger soldiers such as Aguirre are drawn in by the guaranteed credit – something not offered by cheaper big-box stores. “A lot of the time, this would be the first time they get a paycheck over $1,000,” said a former store manager.

The company can confidently extend credit to such customers, former employees said, because the loans are almost always repaid through the military’s allotment system. Part of the service member’s paycheck automatically goes to the company every month.

Despite the company’s name, USA Discounters’ items sometimes come at a substantial markup. An iPad Mini, for example, last year sold at USA Discounters for $699 when Apple’s retail price was $329.

On top of these costs, the loans typically are layered with fees for a warranty and a program that cancels the debt under certain circumstances. The plans are optional, but are included on the vast majority of loans, former employees said.

Dorsey, the USA Discounters executive, said the company’s cost of purchasing goods was higher than big-box retailers with greater buying power. As for the add-ons, he said they are clearly disclosed as optional. The company’s typical interest rate is “less than 20 percent,” he said.

The final tally on the loans can be staggering for some young service members. In 2009, Army Pvt. Jeramie Mays, then 26, walked into the USA Discounters near Fort Bliss in Texas to buy a laptop before being deployed to Iraq. He chose a model that typically retailed for $650. At USA Discounters, it sold for $1,799. On top of that came $458 in add-ons. After another $561 in interest charges, Mays walked out owing $2,993 in payments over 23 months, according to a copy of his contract.

For Aguirre, it was only later, when he and his wife tried to get their finances under control, that he realized just how much he owed. The total loan amount is clearly listed on all USA Discounters’ contracts, but customers often don’t grasp how long they’ll be paying, said a financial counselor who advises soldiers and sailors.

The military generally provides credit counseling for young service members. But for some, the allure is too great, particularly when the companies bill themselves as military friendly. “After the horse is out of the barn, there’s not a lot you can do about it,”

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