A nationwide network of lenders sold grossly overpriced electronics to members of the military, and then trapped them in illegal financing schemes, according to a complaint by the New York State Attorney General's office.
Andrew Cuomo's lawsuit against SmartBuy Computers and Electronics, and a host of associated companies doing business under various names in New York, Texas, Oklahoma, Colorado, Georgia, North Carolina, California, and Tennessee, alleges the network peddled products marked up 225% to 325% above retail.
All SmartBuy's locations across the country were set up close to military communities and its operations catered specifically to members of the military. According to the investigation, salespeople were trained to specifically seek out people in uniform and with military-style haircuts.
"Service members have been financially vulnerable throughout the years, because they have a regular paycheck coming in and creditors can go through their commanders to collect," said Kathleen Moakler, director of government relations at the National Military Family Association, a non-profit group. "Once they have their name on the dotted line, there's a lot of potential career fallout if they fall behind on their contracts."
Sales were made primarily with financing plans reliant on monthly direct withdrawals from the soldiers' paychecks. Those agreements, which the suit alleges never disclosed the final price of the items, also gave SmartBuy and its affiliates access to the customers' bank accounts. If a soldier defaulted, the company would exert pressure by contacting his or her commanding officer -- a potentially harsh tactic for a soldier, since Army regulations forbid getting into a financially precarious situation.
SmartBuy allegedly bilked a soldier out of $4,632.17 for a 47-inch TV that cost $1,100 at Sam's Club. They locked another into a $3,945 financing agreement for a computer that cost $800 elsewhere. After canceling that agreement the same day, the suit alleges the company made phone calls trying to collect on the nonexistent debt. After returning home from deployment a couple of years later, a SmartBuy representative contacted the soldier's commanding officer saying he owed $4,800.
Former employees of the company attested that the merchandise was purchased from other retailers such as Sam's Club, Costco or Wal-Mart. Workers would later "prepare" it for markup by removing original stickers and identifiers from the boxes. In at least one case, a prospective employee was asked how they felt about selling overpriced items to customers.
"SmartBuy has never, ever charged '244 percent in interest on [any] purchase.' We just don't understand how the Attorney General's office arrived at this allegation," SmartBuy attorney Gabriel Nugent said in a written statement. "SmartBuy does not deceive its customers, all of whom are made aware that the exact merchandise SmartBuy sells may be available by other sellers at a lower price. Without an outlet such as SmartBuy, many of these customers would not be able to obtain electronic goods such as televisions, computers, etc. SmartBuy looks forward to continuing to service members or our military, those at Fort Drum in New York and elsewhere."
The lawsuit seeks to bar SmartBuy and its affiliates from doing business in New York; order full resitution to consumers who bought items at the company's flagship location in Watertown, N.Y.; void all current financing agreements; and obtain $5,000 in civil penalties for each deceptive act.
Attorney General Cuomo also sent a letter to Defense Secretary Robert Gates and Secretary of the Army John McHugh notifying them of the abuses.
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