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CFPB and States Take Action Against Freedom Stores for Illegal Debt Collection Practices Against Servicemembers

Retailer and Debt Collectors to Provide Over $2.5 Million in Consumer Relief for Illegal Lawsuits and Unauthorized Debits

WASHINGTON, D.C. – The Consumer Financial Protection Bureau (CFPB) and the Attorneys General of North Carolina and Virginia took action today to protect military servicemembers from illegal debt collection practices. The CFPB alleges that Freedom Stores, Inc., Freedom Acceptance Corporation, and Military Credit Services LLC used illegal tactics to collect debts, including filing illegal lawsuits, debiting consumers’ accounts without authorization, and contacting servicemembers’ commanding officers. The CFPB and the states filed a consent order in federal court to require the three companies and their owners and chief officers, John Melley and Leonard Melley, Jr. to provide over $2.5 million in consumer redress and to pay a $100,000 civil penalty.

“Our nation’s servicemembers deserve better than to be targeted with illegal collections tactics when they are struggling to pay their bills,” said CFPB Director Cordray. “Freedom Stores and its affiliated companies were filing thousands of lawsuits in Virginia against consumers not from there, taking money from some consumers’ bank accounts without permission, and using the military chain of command to pressure and humiliate servicemembers. Today’s action sends a clear message that the Consumer Bureau will continue to aggressively defend the rights of servicemembers and all consumers.”

“Military servicemembers 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.”

“This settlement resolves serious charges that Freedom Furniture engaged in abusive, harassing collection practices against Virginia veterans and servicemembers while also misusing Virginia courts to go after consumers who neither live nor do business in Virginia,” said Virginia Attorney General Mark Herring. “Our joint action will restrict such practices in the future, provide significant relief to those who have been wronged, and send a clear signal that we will aggressively pursue businesses that abuse Virginia consumers, especially any that prey on veterans and servicemembers. The Commonwealth of Virginia and our courts will not be a safe harbor for unfair and abusive practices. I appreciate the hard work on behalf of veteran consumers by my Consumer Protection Section and our partners at the Consumer Financial Protection Bureau.”

Freedom Stores (also known as Freedom Furniture and Electronics) is a Virginia-based furniture and electronics retailer that caters to U.S. military members with stores located near military bases nationwide. Freedom Stores offers credit to consumers purchasing its merchandise and transfers the contracts to an affiliated company, Freedom Acceptance Corporation. John Melley and Leonard Melley, Jr. also own Military Credit Services, which provides financing for purchases made at over 300 independent consumer-goods retailers, primarily catering to servicemembers.

The CFPB’s investigation found that Freedom Stores, Inc., Freedom Acceptance, and Military Credit Services and the owners, John Melley and Leonard Melley, Jr., engaged in illegal debt collection practices in violation of the Dodd-Frank Wall Street Reform and Consumer Protection Act. These illegal practices include:

  • Illegally filing thousands of lawsuits in Virginia for out-of-state contracts: From July 2011 to December 2013, Freedom Acceptance Corporation and Military Credit Services filed over 3,500 lawsuits in Norfolk, Virginia against consumers who had not signed their financing contracts in Virginia and did not live there when the suits were filed. Almost all of those lawsuits resulted in a default judgment, after which the companies garnished the consumers’ wages or put liens on their bank accounts. Some consumers did not even know they had been sued until they discovered their bank accounts had been drained.
  • Double-dipping into servicemembers’ funds: Most of Freedom Acceptance’s and Military Credit Services’ customers sent their payments via military allotment, but the companies also required consumers to authorize withdrawals from a bank account as a back-up payment method. Because the companies relied on reports from a payment processor that were sometimes incorrect, many consumers had their payments taken from both their paychecks and their bank accounts in the same month, often without their knowledge and before the payment due date. This caused many servicemembers to pay unexpected overdraft fees and non-sufficient funds charges.
  • Contacting commanding officers to pressure servicemembers into repayment: A clause buried in the fine print of the purchase contracts required servicemembers to allow Freedom Acceptance and Military Credit Services to contact their commanding officers about their debt. The companies would contact the officers in writing and by phone to disclose the debts, humiliating the servicemembers and putting their careers at risk. For members of the military, consumer-credit problems can result in disciplinary proceedings or lead to revocation of a security clearance.
  • Illegally debiting bank or credit card accounts of consumers’ family and friends: Collectors for these companies withdrew funds from checking accounts and credit cards of consumers’ parents, significant others or other individuals without prior authorization. The problem would start when a parent or other third party would authorize a one-time payment on a consumer’s behalf. The companies would keep the payment information in their systems, and then debt collectors would later take funds from those accounts without authorization or notification.

The Bureau’s investigation also found that Freedom Stores, Inc. violated the Electronic Fund Transfer Act by failing to properly disclose the terms of preauthorized transfers, and that Military Credit Services violated the Truth in Lending Act by failing to properly disclose the terms and interest rates on the loans it offered.

Under the terms of the consent order filed today, the defendants would be required to provide over $2.5 million in relief to consumers harmed by the companies’ illegal actions, and to pay $100,000 to the CFPB’s Civil Penalty Fund. The defendants would also be barred from further violations of the law and subject to monitoring by the CFPB.

The Bureau and the states’ complaint is not a finding or ruling that the defendants have actually violated the law. The proposed court order has been filed with the U.S. District Court for the Eastern District of Virginia and will have the full force of law only when signed by the presiding judge.

A copy of today’s complaint is available at:

A copy of the final order entered by the court is available at:

A blog post by Assistant Director for Servicemember Affairs Holly Petraeus regarding this action is available at:

Updated on December 9, 2015 with final order

The Consumer Financial Protection Bureau is a 21st century agency that implements and enforces Federal consumer financial law and ensures that markets for consumer financial products are fair, transparent, and competitive. For more information, visit