Duo Accused of Bilking Military Members

RICHMOND, Va. (CN) - The attorneys general of Virginia and North Carolina joined the Consumer Financial Protection Bureau in suing a retailer they claim preys on service men and women through a fraudulent credit scheme.

In a complaint filed in the Norfolk Federal Court, the authorities say John and Leonard Melley, the officers of Freedom Stores, Inc., provided service men and women with financing for furniture, household appliances, jewelry, electronics and other consumer goods.

The revolving-credit plans were provided by the Melleys through other entities they controlled, Freedom Acceptance Corporation and Military Credit Services.

In addition to Freedom, which sold products on the Internet and in 14 brick-and-mortar stores, Military Credit Services also provided credit to consumers through over 300 independent retailers.

The complaint alleges the Melleys frequently double-charged its military account-holders, charged consumers without consent, and contacted ranking military authorities to collect on debts.

Consumers who enrolled in automatic payment plans with Freedom or MCS were often billed based on the potential risk of missing payments according to a "Look-Ahead Report," which would effectually withdraw double the actual amount owed in each monthly cycle, the government claims. This policy especially posed a problem for customers deployed overseas who had limited access to their credit accounts.

According to the complaint, debt collectors for Freedom and MCS would often deduct payments from cosigners' of delinquent accounts without their consent. They are also accused of contacting chain-of-command for service members in attempts to collect debt.

"For members of the military, consumer-credit problems can result in disciplinary proceedings, lead to loss of supervisory authority or promotion potential, tarnish a soldier's reputation or honor, erode the trust of leadership, and trigger revocation of a security clearance," the complaint says.

The Melleys are also accused of filing suit and garnishing wages without customers' knowledge. According to the complaint, "certain consumers did not learn they had been sued until they unsuccessfully attempted to withdraw cash from their bank accounts, which had been garnished."

The plaintiffs seek injunctive relief, disgorgement of the defendants' allegedly ill-gotten gains, and damages and civil penalties.

The complaint was filed by Kara Miller and Meghan Cater of the Consumer financial Protection Bureau in Washington, D.C.

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