5 On Your Side

WRAL Investigates Q&A with USA Discounters/USA Living

Posted November 17, 2014

Why was the name changed to USA Living?

The name USA Discounters was created by the company’s founder more than 20 years ago. However, the company is not a discount store and changing the name to USA Living was one of the first decisions Jeff Feinberg made after becoming CEO this spring. Cynics will assert that the change was made in response to adverse media coverage. But that’s simply untrue. The decision was made to eliminate any possibility of confusion and the process has been in the works for several months now.

How does the business model of USA Discounters differ from that of USA Living?

Jeff Feinberg is a managing director with Alvarez & Marsal, a firm that provides performance improvement, turnaround management and advisory services to organizations seeking to transform operations. The firm was retained by USA Discounters to assess the company’s operations and identify and implement a variety of performance improvement initiatives. As part of this process Jeff was named CEO.

While evaluating every aspect of the way the company does business, Jeff has placed a special emphasis on issues related to credit and collection practices involving military customers. To that end, the company has already implemented several key improvements on its own accord – not because it has been forced to, but because it is the right thing to do. These efforts include hiring a new head of financial services and collections; revamping collection escalation policies, process and procedures for military personnel; further expanding disclosures and communications with customers; introducing a venue selection form to accompany all contracts and providing customers with additional selection points through the collection process; upgrading employee training and improving customer service operations – and much more.

Why change your business practices?

(No response.)

What do you say about accusations USA Discounters engaged in unfair and deceptive pricing, marketing and financing practices against members of the military?

Those accusations are simply wrong and not supported by facts. USA Living / USA Discounters has had a long an important relationship with the military community and the company is privileged to have several former service members as employees. No company feels more passionately about our nation's service members and the sacrifices they make for our country. Jeff’s personal commitment is to make sure that this company’s commitment is never again questioned, through actions, not just words that make that clear.

USA Living / USA Discounters provides credit to customers who have poor or short credit histories and have difficulty financing purchases made at more traditional retail outlets. Because the company serves individuals who have blemished credit, but who are seeking to build or rebuild that credit track record, it is in a position of unique responsibility. No business model based on unfair or unethical practices should ever be permitted to exist, especially in the case of military personnel. And that is certainly not the case here.

While the company has a long history of serving the military, service members account for less than half of the customer base. The company’s military customers include officers and enlisted service members through the O-6 rank. The vast majority are above the E1-E3 pay grade level. USA Living / USA Discounters does not require allotments, as are required by other companies, and does not pressure customers into establishing them. This is entirely up to the customer.

USA Living / USA Discounter’s underwriting process is very detailed and, unlike some competitors, focuses primarily on the customer’s ability to pay the obligation. Many factors are considered, including existing income, debts and obligations, credit score, past payment performance with the company and credit history. The average credit score of the company’s customers is less than 600. The credit score is the most-weighted factor, accounting for 60% of the decision process.

If a customer wants to make additional purchases, as Mr. Trill did, a complete review of all factors is undertaken. This includes a new review of the most recent credit report as well as a new review of current income, debts and obligations. The company also requires a proven payment history with the company before allowing an add-on sale.

In fact, the company goes well beyond what is required under the SCRA and has long-standing initiatives and standards to set it apart from others with respect to credit practices. These include:

  • Meet the cost of credit ceiling established by the Warner Act, though the Act does not apply to USA Living.
  • Ensure no service member leaves the store in financial extremis.
  • Do not force service members to waive legal redress rights, make arbitration mandatory, or mandate onerous notice provisions.
  • No balloon payments
  • No financing without income verification
  •  No aggressive sales tactics
  • No “loan flipping” (repeatedly refinancing without real benefit to the borrower)
  • No blank documents or spaces on loan documents
  • No mandatory credit insurance
  • No pre-payment penalties
  • No “property flipping” (selling to overextended borrower; repossessing the merchandise; then re-selling the merchandise)
  • No excessive late fees (USA Living’s late fees are at or below state requirements)
  • No excessive Non-Sufficient Funds fees (USA Living’s NSF fees are at or below state requirements)

In addition, while media outlets have sought to paint US USA Living / USA Discounters with the same brush as payday lenders or other entities, the company is not a high-cost lender. The company ensures APRs are consistent with national credit card rates or better and are in strict compliance with state laws. Unlike other companies, it does not skirt around usury laws and charge an interest rate higher than the state’s legal limit under the guise that theservice memberer is not a “resident” for purposes of the usury laws. And, despite the fact many customers cannot access credit from other stores because of their ratings, the interest rates offered by the company start at zero percent and are typically less than 20% - making them more favorable to the consumer than credit rates offered by numerous major retailers including: JC Penny, K-Mart, Macy's, Best Buy, h.h. gregg, Rooms to Go, Zales, Jared and Kay Jewelers, among others. A customer's military status has absolutely no impact on the interest rate provided. The company also does not charge excessive fees or points in connection with credit.

Lawmakers are calling for a Department of Defense investigation into your “aggressive debt collection” practices. That’s a serious and unusual effort. What do you say about it?

So there is no misunderstanding:

  • It has been nearly three months since the ProPublica article and statements made by lawmakers. The company is not under investigation by the Department of Defense or any Federal authority and has no reason to believe that it will be. At this point, it would be wrong and irresponsible to create the impression that Congressional lawmakers are still calling for any action as that is not the case.
  • In fact, at the time lawmakers urged the CFPB to look into the company, the CFPB had just completed an exhaustive, year-long review of the company’s operations.

Most importantly, since becoming CEO, Jeff Feinberg has initiated meetings with members of Congress and their staffs, offering a complete and open view into how USA Living / USA Discounters operates. He did this proactively on his own accord. In those meetings he has committed to assisting Congress as well as other government entities in the development and implementation of any changes that can and should be made to ensure that the men and women serving this country are treated as they deserve to be. He has also reached out to the National Consumer Law Center to discuss the company’s practices and seek any additional input the organization may have. And he has initiated the formation of a Military Advisory Board comprised of former/retired senior military personnel and chaired by Al McMichaels, the former Sergeant Major of the United States Marine Corps.

Why require lawsuits your company files be heard in Virginia?

The company never required Virginia to be the exclusive venue for legal disputes. Its retail installment contracts include a provision that makes it permissible - not mandatory - for cases or controversies arising out of the contract to be heard in Norfolk or Virginia Beach. However, it is entirely the customer’s choice whether the matter is heard in Virginia or in the jurisdiction in which the purchase was made.

To enhance communications and ensure that there can be no misunderstanding of the fact that customers in default have a choice of venue, the company has updated materials, created a specific venue selection form and increased the number of times customers are informed of their rights - providing multiple opportunities for the customer to select the venue – above and beyond the standard contract.

  • The venue selection form, which customers must review and sign, clearly states that if legal action is required in the event a customer defaults and fails to resolve the matter with the company, the legal action might be taken in a Virginia court, regardless of where the customer resides or where the customer made purchases. It also clearly states that customers have the right to request that any action taken against them be instead filed in the location where the purchase was made (if the Virginia case is already filed, then it is dismissed and refilled in the requested location). And it alerts them that they may be responsible for paying our attorneys’ fees in the event a judgment is rendered.
  • The company provides information about venue several times after a customer’s account becomes past due and the company attempts to work out a resolution with the customer as part of the collections process.
  • Information about a customer’s rights is provided again at the point at which the company must take the customer to court and informs the customer it is doing so. The specific language provided to customers as part of these communications is also enclosed with this letter.
  • Furthermore, the company is exploring whether appointed attorneys serving as guardians ad litem will be willing to provide this information to their clients and advise them on their rights in this regard. The company can suggest that the attorneys play this role, however, it has no control over communications between the attorneys and their clients.

The Dept of Defense says its payroll data shows USA Discounters seizes the wages of more service members than any other company in the country, why is that?

The company does not “seize” wages. Garnishment of service members is established by federal law and procedures, which USA Living / USA Discounters strictly follows. Less than 1% of the company’s military customers are subject to garnishment as a result of defaults on payments. This fact has been provided to, but conveniently ignored by other media outlets. If a judgment is obtained, the company attempts to work out an agreeable payment solution with the service member before any garnishment is made.

DoD policy is laid out in clear terms: “Members of the Military Services are expected to pay their just financial obligations in a proper and timely manner.” In cases in which the indebtedness of a military member has been reduced to a judgment, an application for an involuntary allotment from the member’s pay may be made under procedures prescribed by the USD(C)/CFO. Pursuant to DoD Instruction 1344.09, such procedures provide the exclusive remedy available.

If an involuntary allotment is ordered, existing procedures at DFAS provide additional protections for service members. When requested through DFAS, both the service member and the service member’s command are sent a notice by DFAS pursuant to DoD instructions before the involuntary allotment is processed. If appropriate (e.g., exigencies of military duties), the command may request an extension of time before a response is due. The service member may consent to the involuntary allotment or may contest it based on (1) lack of compliance with the SCRA; (2) exigencies of military duty caused the service member’s absence from an appearance in court; (3) erroneous involuntary allotment application; (4) the judgment was materially amended or satisfied; (5) legal impediment to enforcement (e.g., bankruptcy); or (6) other reasons as specified by the service member.

What do you say about accusations your prices are inflated, for example—we found several exact items for half the price at other retailers.

USA Living / USA Discounters is transparent about its pricing and policies. The company provides full written disclosure of all prices, fees and terms associated with finance transactions. Prices and terms are clearly marked on 5” x 7” merchandise tags and described so customers can make informed decisions about whether purchases are appropriate for them.

With pricing information widely available through multiple sources, customers are capable of doing their own price comparisons. In many cases, the company’s prices are higher than big box retailers with much greater buying power. Because of the company’s relatively small size, it cost to purchase goods is significantly more than most major national chains. To provide some context, the company’s net income after taxes is less than Walmart, the world’s largest low cost retailer. Wal-Mart’s net income as a percentage of revenue is 3.5%, while USA Discounters’ is only 1.3%.

That said, the company has undertaken a complete product review to ensure the company’s merchandise mix is appropriate from a pricing perspective. However, the choice of where to shop will always be up to the consumer.

Why do you encourage payment by allotment?

USA Living does not require allotments, as are required by other companies, and does not pressure customers into establishing them. This is entirely up to the customer.

What about warranty and debt collection add-ons, many people say those are nothing but a rip-off for customers and a money maker for your company.

Debt cancellation is an entirely voluntary product chosen by the customer that protects the customer should certain events occur. If the customer dies, the remaining debt on the account is canceled. Should one or more of the purchased items be completely lost or destroyed (through no fault of the customer), such as by theft, the remaining debt attributable to that item is canceled. The fees for the program are directly related to the amount of the debt protected (lower debt, lower fees). If the customer is adding on to another purchase, then all items purchased are protected.

The warranty product, which is also entirely voluntary, is very much like other extended warranties commonly offered by retailers throughout the country except for one key difference: If the customer is adding on to another purchase, then all items purchased are protected by the warranty (e.g. items from Contract #1 and Contract #2).

As all pricing and terms are clearly disclosed, the company does not engage in the “packing” or hiding of insurance or other ancillary products. If a customer wishes to purchase such a product, all details are separately disclosed on the face of the customer’s installment contract. Customers are required to sign forms indicating they have reviewed such terms and understand what they are buying and how much it will cost. In addition, the company takes a number of steps to ensure that it is clear to the customer that warranty and debt cancellation products are purely voluntary. These include:

  • In the opening paragraph of the written warranty is the statement:

“The purchase of this Plan is optional by you and will have no effect on whether you qualify for financing.”

This statement is in bold and is the only bolded statement in that paragraph or any nearby paragraph. Customers must separately sign for the warranty and do so on the same page as the above statement is made.

  • The debt cancellation product states in bold/italicized text:

“The Debt Cancellation program is optional. Your participation in the Debt Cancellation program is optional. Whether or not you participate in the program will not affect your application for financing or the terms of any agreement you have with USA Discounters, Ltd.”

Again, customers must separately sign the debt cancellation agreement and do so on the same page on which the above statements are made, and directly below a statement (in all caps) reading: “I HEREBY REQUEST TO PARTICIPATE IN THE DEBT CANCELLATION PROGRAM SUBJECT TO THE TERMS HEREOF: (signature) _______________________”.

How many lawsuits has USA discounters filed since Jan 2006? Why? How many lawsuits has USA Discounters/USA Living filed since September 1, 2014? How many lawsuits have been dropped since Sept. 1, 2014? Is USA Living contacting customers named in suits to work out new agreements? What is different about those efforts?

Information on Lawsuits

USA Living / USA Discounters recognizes the unique challenges facing military service members. If a customer defaults on payments, the company approaches the collection process in line with standard practices and strictly follows Department of Defense guidelines with regard to indebtedness of military personnel.

Lawsuits filed in Virginia account for less than 5% of the company’s total transactions dating back to 2006, meaning that thousands of transactions have been uneventful and resulted in satisfied customers who paid their bills. In addition, considering that the vast majority of the company’s customers have challenged credit, the number of cases that have gone to judgment is phenomenally low.

The company always attempts to work out a resolution, such as a restructured payment plan, and only takes legal action as a very last resort. This typically happens after the company has made numerous attempts to contact customers by phone, email and postal mail and has received no response over a four to six month escalation process, which is longer than industry standards. Recent media reports have created the impression that the company takes customers to court nearly immediately after they default. That is simply not true. Court action is taken only as a very last resort. The company does not bring suits for collection unless and until all reasonable efforts to work out a solution with the servicemember have been exhausted.

All customers have the opportunity to resolve financial issues quickly and appropriately, regardless of where they are located, including being deployed overseas. When the company goes to court, there is no alternative. If the customer fails to contact the company, respond to the company, and/or work out a resolution and legal action is required to be taken as a last resort, customers are advised by letter of the pendency of a lawsuit. The customer is served with the lawsuit by the methods prescribed by the applicable state. The court al so mails a separate copy of the suit to the service member.

In connection with court action, the company ensures the service member’s rights are protected. At the company’s initiation, it provides every active duty service member at least a 90-day continuance. This means the company proactively requests this of the court. The company does not wait for an application by counsel or the court’s own motion, nor does it demand additional facts be shown, as all are required by 50 USC App. § 521(d); it simply makes the request.

The company also provides an additional layer of support to obtain certification of active duty military status to ensure service members get all rights afforded under the SCRA. When the company learns that a service member is deployed, the company grants additional extensions as long as the service member continues to be deployed.

Has your contract wording changed since Sept 1, if so, how?

The company has increased the number of times and the ways in which is provides information about venue selection to customers as described above. It has published a Customer Bill of Rights, guidelines on how the company treats customers; further expanding the number of disclosures provided to customers to make every aspect of the transaction as clear as possible, including information about what happens in the event a customer defaults; and made available additional in-store materials to help customers better understand credit obligations, what they are agreeing to and how credit works.

USA Discounters was fined and ordered to pay refunds to service members after the company charged a $5.00 “SCRA Specialists Fee.” Why was the fee charged? What do you say to accusations USA Discounters used the small amount believing it would go unnoticed yet yield significant profits?

In the summer of 2013, the Consumer Financial Protection Board began looking into the business practices of numerous companies that provide credit to military personnel. While the CFPB is continuing that process with other companies, the agency completed its exhaustive, year-long examination of USA Living / USA Discounters and the company fully cooperated with the inquiry.

Following its review, the CFPB concluded that the company violated sections of the Consumer Financial Protection Act by inappropriately describing services that were to be provided by a third-party company, SCRA Specialists, LLC, in exchange for a one-time $5 fee. SCRA Specialists provided address change services and, upon our request, military status verifications, which the company typically handled on its own. SCRA Specialists, LLC never appeared in court on behalf of anyone nor did it ever promise to do so.

USA Discounters made no profit and, in fact, lost money in connection with the fee in question. It is completely wrong to suggest that the company “used the small amount believing it would go unnoticed yet yield significant profits.”

While the company disagreed with the CFPB’s conclusion, it agreed to return the $5 fee to customers and pay a penalty of $50,000. It also severed the relationship with the third -party vendor to which the fee was paid and eliminated the fee from all future transactions. This was the only area of the company’s operation with which the CFPB found fault – after a lengthy, comprehensive review of the company’s practices.

Given the substance and the spirit of our discussions with the CFPB, the company was astonished at the way the agency cast the matter in its press release, which contained numerous factually inaccurate statements – statements that were not reflective at all of their actual findings or the content of the consent order.

The consent order made no reference to or allegation that the company "scammed" or “tricked” service members and we find those press release statements to be extremely offensive. There was no exploitation of service members. There was no charge to service members for legal protections they were already entitled to. And at no time in the year leading up to the settlement – or in its consent order – did the CFPB make such assertions. It was only after we settled with the CFPB that these gross misstatements were made in a press release. Moreover, the CFPB knew that USA Discounters lost money in connection with administering the fee in question but chose to omit that fact and their knowledge of it, as it runs
completely counter to the press release assertion that this was a “fee scam.”

The company has no idea who inserted phrases like that into the press release or what the motivation was, but those statements are inappropriate at best and, at worst, unethical and defamatory. The statements are patently false and have caused significant harm to the company. Unfortunately, the company’s only practical course of action was to meet with the CFPB’s Ombudsmen, which Jeff Feinberg did in September to discuss the handling of this matter by the CFPB’s press office.

What do you want our viewers to know about the way USA Living operates now?

ProPublica / Washington Post Report

Despite cooperating fully with the reporter, being as transparent as possible and declining to hide the company’s record as some competitors did, ProPublica and The Washington Post took specific statistics out of context to create a certain impression in line with a preconceived and inaccurate theory. The reporter chose not to include much of the information we provided, as it did not support his misguided premise of the story.

For example, the reporter knew that the lawsuits filed in Virginia account for less than 5% of the company’s total transactions dating back to 2006, meaning that thousands of transactions have been uneventful and resulted in satisfied customers who paid their bills. He also knew that less than 1% of military customers are subject to garnishment, meaning more than 99% are not. He chose to print neither. Here are the facts:

  • If customers do not fulfill debt obligations, USA Discounters/USA Living takes several steps to resolve the delinquencies – all of which are in line with standard industry practices and strictly in line with Department of Defense guidelines with regard to indebtedness of military personnel.
  • The first step is to contact customers by phone, email or a mailed letter alerting them to the delinquency and asking that they contact the company to resolve the matter. After that, additional – in many cases, several additional – attempts are made to contact customers to resolve the delinquency. It is always preferable to resolve the issue directly with the customer before pursuing any necessary legal action. The information and timeline of events provided to you in connection with Mr. Trill’s case clearly shows this. The first contact was made after he was late with payments in April. There were several attempts to work out a resolution and several offers proposed, but none was agreed to by the customer. As you know, Jeff Feinberg recently spoke to him personally and offered to resolve the issue through a plan under which Mr. Trill would pay ... a 50% reduction in the amount he owes to the company.
  • Resolutions vary case by case. Options can include: a delayed payment, a one-time (or multiple time) lower payment, a refinancing that lowers the customer’s payment permanently, and in some cases, a voluntary return of the purchased products.
  • Collection suits against customers are filed only as a last resort and most often occur when the customer will not respond to calls or letters and will not discuss possible resolutions (typically four or more months after default). In every case the company is forced to file as a last resort, the customer owes the company money, making its success rate in court not at all surprising.

All of this information, and more, was provided to the ProPublica reporter, who chose to ignore the facts. Furthermore, the reporter also knew USA Discounters/USA Living is legally barred from releasing information about individuals who defaulted on their credit payments without their written permission. Despite informing ProPublica that there was another, very different, side to each of the case histories the article described and asking that the publication obtain permission from the customers for us to tell those stories, we received no such permissions and the one-sided case histories were presented as if they were entirely accurate. If a customer provides the company with a written release form, as Mr. Trill did through your station, the company has absolutely no issue with releasing the facts of the cases.

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