WFC Wells Fargo and Company

USA Discounters Ltd., a retailer accused of misleading U.S. service members, filed for bankruptcy protection and plans to wind down its business.

Until recently, USA Discounters sold furniture, appliances, electronics, jewelry and other products from stores located near military bases, often financing such purchases through its own credit program. The company cited the tough retail climate, a defaulted loan and various governmental actions regarding its operations as factors for the chapter 11 filing.

Last year, the retailer agreed to pay a $50,000 civil penalty to the Consumer Financial Protection Bureau and to stop charging military customers a fee to obtain certain financial protections, following an investigation by the agency. USA Discounters didn't admit or deny any wrongdoing.

The company currently faces a multistate investigation from several attorneys general into its business practices. In the bankruptcy papers filed on Monday, USA Discounters says it is cooperating with the probe.

USA Discounters said in the filing that it hasn't been able to find a buyer for the company and expects to use its time in chapter 11 to wind down its operations. It closed its 24 USA Living stores before filing for bankruptcy protection and is still considering its options for its seven Fletcher's Jewelers stores.

Founded in 1991 in Norfolk, Va., USA Discounters financed customers' purchases of such items as televisions, washers, dryers and jewelry—products it said "might otherwise be out of reach" for its customers, many of whom were military members and their families and had "limited resources or tarnished credit profiles.

A typical USA Discounters purchase plan required a fixed monthly payment for 30 months and carried interest and fees, including late fees, the company said. The retailer received a security interest in the merchandise sold, which allowed it to repossess the item if payments stopped.

The company said in court papers it discontinued credit sales as of Monday, the date of its bankruptcy filing and is selling jewelry for cash only. USA Discounters said it is owed an estimated $114 million on existing payment plans, its most significant asset.

The company's business practices with regard to its military customers have come under fire in the past few years, amid government investigations and an investigation by ProPublica and the Washington Post.

In its investigation last year, the CFPB said it found that USA Discounters misled customers by charging them a $5 fee to determine whether they were eligible for protections under the Servicemembers Civil Relief Act, which aims to protect active-duty military from debt collectors. The CFPB said the services USA Discounters advertised were its legal obligation to perform and the company didn't make good on its pledge to help struggling borrowers.

Besides the civil penalty, the retail company also agreed to stop charging the $5 fee and pay more than $350,000 in restitution to service members.

In September 2014, after a spate of media attention and the CFPB settlement, USA Discounters began operating under the USA Living brand.

The company said in the bankruptcy-court papers that this was a "completely voluntary" move that wasn't the result of any investigation or bad press, but was meant to reflect the fact that the company isn't a discount retailer.

In its petition in the U.S. Bankruptcy Court in Wilmington, Del., USA Discounters reported debts of as much as $100 million. It has unsecured debts of approximately $2.5 million.

USA Discounters will make its first appearance in bankruptcy court on Wednesday.

Write to Jacqueline Palank at jacqueline.palank@wsj.com

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(END) Dow Jones Newswires

August 25, 2015 22:05 ET (02:05 GMT)

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