• Freedom Furniture to pay $2.6M consumer settlement

    Retailer Freedom Furniture and its affiliates have reached a settlement with government agencies to pay more than $2.5 million in consumer relief and $100,000 in civil penalties after allegedly targeting North Carolina and Virginia military consumers with unfair business practices including illegal debt collection tactics.

    The federal Consumer Financial Protection Bureau, in cooperation with the attorneys general of North Carolina and Virginia, filed a complaint and judgment in federal court in Virginia against Freedom Furniture Inc., Freedom Acceptance Corp., Military Credit Services, LLC and owners John F. Melley and Leonard B. Melley Jr. for alleged violations of state and federal laws dealing with credit and debt collection.

    Freedom Stores, also known as Freedom Furniture & Electronics, is based in Norfolk, Va., and has 14 stores near military bases nationwide.

    It offers credit to consumers who purchase its merchandise through Freedom Acceptance Corp. Military Credit Services provides financing for purchases made at more than 300 independent consumer goods retailers that primarily cater to service members.

    The judgment demands that Freedom Furniture, FAC and MCS pay $2.2 million in consumer debt forgiveness and $373,279.06 in refunds for consumers who have default judgments entered against them in court as a result of the debts. Eligible consumers will receive refunds from the Consumer Financial Protection Bureau.

    According to the judgment, the defendants also are required to alert credit reporting agencies to adjust the amounts owed by consumers.

    According to government officials, the investigation found that the companies engaged in illegal debt collection practices in violation of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

    The illegal practices include:

    - Illegally filing thousands of lawsuits in Virginia for out-of-state contracts. This included 3,500 lawsuits filed in Norfolk against consumers who had not signed their financing contracts in Virginia and did not live there when the suits were filed. The investigators said almost all these lawsuits resulted in default judgments that resulted in the garnishing of consumer wages or liens put on their bank accounts.

    - Double dipping into service members’ funds, which resulted in payments being taken from consumers’ paychecks and also their bank accounts without their knowledge and before the payment due date.

    - Contacting commanding officers to pressure service members into repayment. A clause in the purchase contracts allowed such contact, but the practice can put the careers of service members at risk, the investigating agencies said.

    - Illegally debiting bank or credit card accounts of consumers’ family or friends.
    The CFPB also found that Freedom Stores Inc. violated the Electronic Fund Transfer Act by failing to properly disclose the terms of the preauthorized transfers. It also found that MCS violated the Truth in Lending Act by failing to properly disclose the terms and interest rates on the loans it offered.

    “Military service members work hard to protect our country, but unfortunately their steady paychecks can make them targets for shady practices,” said North Carolina Attorney General Roy Cooper. “We won’t tolerate unscrupulous businesses that take advantage of military consumers.”

    The agencies said that the complaint is not a finding or ruling that the defendants have actually violated the law. The proposed order has been filed with the U.S. District Court for the Eastern District of Virginia and will only become effective when signed by a presiding judge.

    In addition to the financial penalties, the judgment would bar defendants from:

    - Filing lawsuits against consumers in courts outside of the consumer’s county of residence or the county where the debt was incurred.

    - Charging any third party accounts such as credit or debit cards without written consent.

    - Collecting payments from backup accounts before payments are actually due and without notice.

    - Garnishing North Carolina consumers’ wages.

    - Contacting friends or family members about a consumer’s debts.

    + Contacting a service member’s chain of command about a debt.

    In a statement, Freedom Stores President Leonard Melley said, “The CFPB has had a special focus on companies that operate in the military community since its 2011 founding, which led to the inquiry regarding Freedom Stores. We support the Bureau’s efforts to root out bad actors in this space, but by the CFPB’s own admission, the complaint against Freedom Stores, is not a finding or ruling that the defendants have actually violated the law.

    “Regardless, Freedom Stores has voluntarily agreed to forgive more than $2 million in loans and provide more options regarding where default litigation will be conducted. In addition, we are redoubling our efforts to educate customers on money management fundamentals through our online MoneySkill course. More than 1,000 customers have already completed the course, receiving a $100 Freedom Store gift card. In 2015, we have set the goal of 5,000.”

    He added that the company also has put new safeguards in place to ensure customers are charged for loan payments only as expected and will be creating an internal advisory board of former military personnel and other experts “who will help guide our policies. We are proud to make these changes to ensure we are providing the highest level of service to our customers.”