WRAL Investigates Q&A with USA Discounters/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.

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.

(No response.)

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:

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.

So there is no misunderstanding:

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.

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.

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.

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.

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.

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:

“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 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) _______________________”.

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.

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.

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.

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.

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.

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.

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:

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.