USA Discounters Seeks Bankruptcy Protection
August 25 2015 - 9:20PM
Dow Jones News
USA Discounters Ltd., a retailer accused of misleading U.S.
service members, filed for bankruptcy protection and plans to wind
down its business.
Until recently, USA Discounters sold furniture, appliances,
electronics, jewelry and other products from stores located near
military bases, often financing such purchases through its own
credit program. The company cited the tough retail climate, a
defaulted loan and various governmental actions regarding its
operations as factors for the chapter 11 filing.
Last year, the retailer agreed to pay a $50,000 civil penalty to
the Consumer Financial Protection Bureau and to stop charging
military customers a fee to obtain certain financial protections,
following an investigation by the agency. USA Discounters didn't
admit or deny any wrongdoing.
The company currently faces a multistate investigation from
several attorneys general into its business practices. In the
bankruptcy papers filed on Monday, USA Discounters says it is
cooperating with the probe.
USA Discounters said in the filing that it hasn't been able to
find a buyer for the company and expects to use its time in chapter
11 to wind down its operations. It closed its 24 USA Living stores
before filing for bankruptcy protection and is still considering
its options for its seven Fletcher's Jewelers stores.
Founded in 1991 in Norfolk, Va., USA Discounters financed
customers' purchases of such items as televisions, washers, dryers
and jewelry—products it said "might otherwise be out of reach" for
its customers, many of whom were military members and their
families and had "limited resources or tarnished credit
profiles.
A typical USA Discounters purchase plan required a fixed monthly
payment for 30 months and carried interest and fees, including late
fees, the company said. The retailer received a security interest
in the merchandise sold, which allowed it to repossess the item if
payments stopped.
The company said in court papers it discontinued credit sales as
of Monday, the date of its bankruptcy filing and is selling jewelry
for cash only. USA Discounters said it is owed an estimated $114
million on existing payment plans, its most significant asset.
The company's business practices with regard to its military
customers have come under fire in the past few years, amid
government investigations and an investigation by ProPublica and
the Washington Post.
In its investigation last year, the CFPB said it found that USA
Discounters misled customers by charging them a $5 fee to determine
whether they were eligible for protections under the Servicemembers
Civil Relief Act, which aims to protect active-duty military from
debt collectors. The CFPB said the services USA Discounters
advertised were its legal obligation to perform and the company
didn't make good on its pledge to help struggling borrowers.
Besides the civil penalty, the retail company also agreed to
stop charging the $5 fee and pay more than $350,000 in restitution
to service members.
In September 2014, after a spate of media attention and the CFPB
settlement, USA Discounters began operating under the USA Living
brand.
The company said in the bankruptcy-court papers that this was a
"completely voluntary" move that wasn't the result of any
investigation or bad press, but was meant to reflect the fact that
the company isn't a discount retailer.
In its petition in the U.S. Bankruptcy Court in Wilmington,
Del., USA Discounters reported debts of as much as $100 million. It
has unsecured debts of approximately $2.5 million.
USA Discounters will make its first appearance in bankruptcy
court on Wednesday.
Write to Jacqueline Palank at jacqueline.palank@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
August 25, 2015 22:05 ET (02:05 GMT)
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