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AG: Hundreds of Fort Drum soldiers to benefit from $9.5 million SmartBuy settlement

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The state attorney general announced Monday that hundreds of Fort Drum soldiers who did business with SmartBuy in the Salmon Run Mall and thousands of soldiers who did business with the company elsewhere will have a total of $9.5 million in debts owed to the company wiped out.

Attorney General Eric T. Schneiderman said SmartBuy, which is based in North Carolina, and its affiliates also will clear soldiers’ negative credit ratings related to contracts the military members entered into for computers and other electronics that were sold at “wildly inflated” prices.

“SmartBuy took advantage of service members using deceptive practices, roping them into high-interest contracts and ruining their credit,” Mr. Schneiderman said in a statement. “These actions are nothing short of unconscionable. While protecting our values overseas, this is the last thing these soldiers needed to be worried about at home.”

SmartBuy opened a location in the Watertown mall in 2005, but closed abruptly in April 2010 after the attorney general began looking at its marketing and lending practices that appeared to target Fort Drum soldiers specifically. The attorney general found that sales clerks aggressively pushed the sales of electronic equipment, including laptops, gaming systems and flat-screen televisions, to soldiers. At the time of the sales, SmartBuy representatives refused to take cash payments for merchandise and instead pressured soldiers to enter into payment contracts with hidden fees and exorbitant interest rates, according to the attorney general.

The investigation revealed that SmartBuy’s practices at its Watertown location were part of a larger scheme to defraud service members by deceptively reselling them computers and electronics at inflated prices and locking them into revolving credit agreements with undisclosed fees and very high interest rates paid directly from military paychecks, according to the attorney general’s office. SmartBuy purchased merchandise from stores such as Sam’s Club, Costco and Walmart, then marked the items up by 200 percent to 325 percent and included added interest of 10 percent to 25 percent. The interest rates averaged out at 244 percent.

According to the terms of the settlement, SmartBuy and affiliated companies will contractually release all of the approximately 350 soldiers in New York state, and an additional 3,963 soldiers nationwide, from their debt. The company also will pay a $150,000 penalty to the state.

This is the second settlement agreement the attorney general has reached with SmartBuy or one of its affiliates. In August 2011, Rome Financial Co. Inc., of California, agreed to wipe away $3.5 million in soldiers’ debt. State Supreme Court Judge Hugh A. Gilbert has entered a judgment against the companies banning them from doing business in the state.

The case was handled by Deanna R. Nelson, assistant attorney in charge of the attorney general’s Watertown office, with the assistance of Sonya VanVechten, consumer protection representative, and Chad Shelmidine, senior investigator, under the supervision of Martin J. Mack, executive deputy attorney general for regional affairs.

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