Why it matters
A military allotment processor will pay $3.065 million for charging servicemembers millions of dollars in hidden, recurring fees, the Consumer Financial Protection Bureau (CFPB) has announced. Fort Knox National and a subsidiary failed to disclose fees tacked onto allotment payments, which allow direct deductions from military paychecks to send money home or pay creditors, the Bureau alleged. Over a four-year-period, the companies added a $5 fee to send letters to servicemembers if a residual balance remained in the account, the CFPB said, or charged $12 to $20 for an account with a positive balance that remained idle for more than six months. Compounding the problem: servicemembers did not receive monthly statements or acknowledgements about the fees, leaving the charges—which were made on top of monthly maintenance fees of $3 to $5—a mystery to most military members, the Bureau said. A consent order with the companies requires a $3.065 million payment for restitution, with affected servicemembers estimated to receive about $100 each. In a press release about the action, CFPB Director Richard Cordray cautioned that “others should take note.” This enforcement action underscores the continuing efforts by the CFPB to protect servicemembers.
Detailed discussion
From approximately 2010 to 2014, Fort Knox National Company and its subsidiary, Military Assistance Company (MAC), charged servicemembers millions of hidden, recurring fees that were not clearly disclosed, the Consumer Financial Protection Bureau (CFPB) charged in a new enforcement action.
The Kentucky-based company was one of the nation’s largest third-party processors of military allotments, the Bureau said. The military allotment system was created to help servicemembers deployed overseas send money home to their families as well as pay creditors prior to the advent of electronic transfers. Military members can deduct payments directly from their earnings through the system.
MAC set up its system so that servicemembers created an allotment that transferred a specific amount of their earnings into a MAC-controlled bank account. To have MAC make a payment to a creditor—such as an auto lender or retail merchant—servicemembers were charged between $3 and $5. Residual balances remained in the account, sometimes when a servicemember paid off a debt in full but had yet to stop the automatic deductions.
These residual balances were “slowly drained” by MAC, the CFPB alleged, with recurring, undisclosed fees—an unfair, deceptive, or abusive act in violation of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Fort Knox and MAC failed to provide clear disclosures that the fees would be deducted, the circumstances under which they would be incurred, and the amount of the fees, the Bureau added.
The fees themselves ranged from $5 for MAC to send a letter to a servicemember that a residual balance remained in an account to a $5 fee to send a letter to a current or past creditor of a servicemember to a recurring $12 to $20 fee if an account with a positive balance remained idle for more than six months.
Servicemembers remained in the dark about the fees, the Bureau said. Military members were not informed when fees were charged, the fees were not listed as part of a customer’s online account information with MAC, and neither the bank holding the funds nor MAC provided monthly statements for the account.
To settle the charges, Fort Knox—which began winding down MAC’s allotment business in 2014—agreed to provide $3.065 million for servicemembers. The Bureau said it will contact eligible servicemembers, estimating that individuals will receive approximately $100 each.
To read the consent order in In the Matter of Fort Knox National Company, click here.
