Attorney General reaches settlement over Fort Drum soldier debt fraud

New York state Attorney General Eric Schneiderman

has reached a $9.5 million settlement with retailer SmartBuy and its affiliated companies over debt fraud aimed at soldiers.

Schneiderman says SmartBuy operated from a kiosk and small storefront at Salmon Run Mall near the Fort Drum Army post and ruined the credit of thousands of soldiers through fraudulent charges. The settlement, along with an earlier one with SmartBuy, wipes out $12.9 million in debt for more than 4,000 soldiers nationwide. "SmartBuy took advantage of service members using deceptive practices and roping them into high interest contracts and ruining their credit, Schneiderman said. "These actions are nothing short of unconscionable. I am proud that we were able to wipe out the debts of our men and women who stand up for us every day. While protecting our values overseas, this is the last thing these soldiers needed to be worried about at home."

Schneiderman says SmartBuy salespeople aggressively pushed the sales of electronic equipment, including laptops, gaming systems and flat screen televisions to soldiers. At the time of the sale, he says SmartBuy sales representatives refused to take cash payments for merchandise and instead pressured soldiers to enter into payment contracts with hidden fees and exorbitant interest rates. The investigation revealed that the SmartBuy's Salmon Run Mall location was part of a larger scheme to defraud service members by deceptively reselling them computers and electronics at wildly inflated prices and locking the soldiers into revolving credit agreements with undisclosed fees and very high interest rates paid directly from military paychecks to unlicensed lenders. SmartBuy purchased merchandise from stores like Sam's Club, Costco and Wal-Mart. The items were then marked up by 200-325 percent, then included an added interest of 10-25 percent. The interest rates averaged out at 244 percent.

Fayetteville, N.C.-based SmartBuy closed its local operations after Schneiderman demanded it stop deceptive practices and reimburse soldiers.

According to the terms of the second settlement, all of the approximately 358 New York State soldiers will be released from their contracts. An additional 3,963 soldiers nationwide will be released from their debt. The defendants will also clear all negative credit reports related to the contracts and will pay a $150,000 penalty to the State.

A lawyer for the company says it was satisfied with the settlement that protects soldiers' credit ratings.

Information from the Associated Press was used in this report.