Stopping predatory lending is a game of whack-a-mole. Ban one abusive “financial product” – such as payday loans with 400 percent interest rates – and lenders look for other ways to fleece naive borrowers.
It’s unconscionable when lenders target the armed forces. ProPublica, a nonprofit investigative news organization, has reported a particularly deceptive pattern of abuses.
USA Discounters, which sells and finances furniture, electronics and other consumer goods, has been filing lawsuits against military borrowers stationed anywhere in the world – 13,470 lawsuits since 2006. According to ProPublica, it seizes the pay of more active-duty personnel than any other company in the United States.
Two other Virginia-based companies – Freedom Furniture and Electronics, and Military Credit Services – aren’t far behind. The three companies together have reportedly filed about 35,000 lawsuits since 2006.
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USA Discounters holds a decisive legal advantage when it takes borrowers to court. Its contracts reportedly include a provision that disputes “subject to the jurisdiction” of courts in Virginia. Few 19-year-old recruits probably pick up on the implication: If they want to challenge the suit, they must do so in a Virginia courthouse.
The company reportedly almost always wins judgments, which are garnished from the buyers’ military paychecks.
Predatory lenders love men and women in uniform. Junior enlisted personnel, some of them teenagers, are typically short on cash and shorter on money management experience. They do have steady incomes, however small.
They can “allot” part of their paycheck to a lender, who then automatically gets his payment off the top. (Service members typically must agree to allotment as a condition of borrowing.) They can be intimidated: Money trouble threatens their security clearances and promotions.
It helps, too, if you can require them to defend themselves in Virginia when they are deployed in Afghanistan.
Predatory lending has been a longstanding problem for the armed forces. Unscrupulous loan companies tend to cluster around major bases and installations, including Joint Base Lewis-McChord. They sell themselves as sympathetic and military friendly. Here’s a come-on from USA Discounters’ national website:
“Bad credit? Slow credit? No credit? No problem! Everyone is welcome to apply for financing at USA Discounters. Active duty military & government employees are always approved for credit.”
Not every company that loans money to military personnel is predatory. There’s nothing inherently wrong with extending credit to a specialist or airman and having the payments taken out of his or her paycheck. For a borrower aware of the risks, credit can be important in a financial crisis.
Predators, however, single out the weak. A company that targets people with limited incomes and little financial experience, sells them more than they can afford on terms likely to snare them in a debt trap – all the while posing as their buddy – can be accurately described as a shark circling its prey.