Protecting military personnel from abuse of the military award system
For years, we’ve warned of how corporations are positioning themselves just outside the gates of military bases to target the military with expensive loans and expensive contracts for items like cars, furniture and clothes. ‘electronic.
Despite existing federal protections, the CFPB and the Department of Defense (DoD) continue to closely monitor these companies for abuse, especially those seeking military personnel due to their regular salaries and ability to structure reimbursements. through the military allocation system.
Curbing Abuse of the Military Assignment System
The military stipend system dates back to the Civil War as a tool to help military personnel make automatic recurring payments for housing or to family members directly from their paychecks, especially when they were deployed away from home. Today, however, consumers have many other options for automatic payments, such as arranging Automated Clearing House (ACH) payments or online bill payment services where the consumer’s bank sends money. money directly to a creditor. These services are usually free and offer more legal protections than using the attribution system.
Instead of a benefit to the military, some lenders treat the allotment system as a means of prioritizing repayment of that lender’s loan over payments of other expenses by the military. Lenders make sure they get paid even before military paychecks are deposited into their bank accounts. When allocations are used for bill payment, members cannot choose the order in which to pay higher priority bills. Attributions have been at the center of numerous CFPB military consumer protection lawsuits, where lenders have either demanded reimbursement by attribution, hidden unwanted fees in the payment-by-attribution process, or engaged in deceptive marketing practices. and loans associated with the awards. In these and other military-impacting actions, the CFPB has recovered more than $173 million for thousands of military consumers.
In addition to the CFPB and the DoD, and other regulators have worked to prevent companies from abusing allowances and to change the system to prevent further abuse. In 2014, the CFPB and other financial regulators participated at the request of the Secretary of Defense in an interagency task force to . This task force found that more than $1.38 billion in military paychecks were routed through nearly a million awards to three institutions suspected of abusing the award system during a single exercise. Therefore, which prohibited new allotments to buy, rent or lease personal property like cars, furniture and electronics. The following year, the DoD also expanded the award prohibition in the Military Loans Act (MLA) to include a broader range of credit products, such as installment loans, that cannot be repaid by attribution.
Avoid shields and other disturbing practices
Unfortunately, companies still use the military attribution system for their own benefit and not for the military. Through consumer complaints and the broader work of the CFPB Member Affairs Office, we continue to hear about important concerns, including the following:
Some lenders still require borrowers to put attributions in place
Lenders claim to offer military members a multitude of repayment options, but we keep hearing the opposite from military consumers. A borrower complained that:
“The day the loan was taken out, one of the reps informed me that I had to sit at one of the computers they had set up in their office and set up automatic allocations to get the repayment. of the loan before I was allowed to leave the premises with the loan check. As I was an active duty military at the time, I immediately logged into my Defense Finance and Accounting Service (DFAS) account. ) and I set up an automatic allowance of $150 per month.
In a recent CFPB consent order, a military installment lender claimed to offer multiple repayment options, but we found that employees told the military they were required to repay by attribution—a violation of the MLA—and records showed that 99% of active duty service members, who received loans from this company, repaid those loans by attribution.
Lenders funnel money through deposit accounts to circumvent DoD protections
Some lenders may attempt to evade DoD protections by partnering with allotment processing banks that create “savings accounts” for the service member. Allocations to a savings account are generally not prohibited by DoD rules. But, lenders can attempt to circumvent DoD rules by creating award-funded savings accounts for military members and then arranging automatic payments from those accounts.
All soldiers already have bank accounts since it is necessary to obtain a military pay. It is concerning that the military can open unnecessary and additional accounts with banks that they have little or no choice to select, just to process allocations. Complaints indicate that military personnel are often unaware that they have just set up a new savings account through which they are reimbursing the company. Military personnel may also suffer financial harm due to award accounts. For example, the bank may charge a monthly service or processing fee to send money from the savings account to the lender. In 2013, a single bank suspected of abusing the attribution system reported revenues of $4.9 million from attribution processing fees alone.
Another example is if the service member overfunds the savings account by not immediately stopping the award once the loan is paid off. In this situation, service members may repay lenders more than they are owed, and they may have difficulty recovering these additional funds. For example, a soldier told us:
“[Company] took my first refund by attribution on [date]and two more payments after my loan has been fully paid off by attribution…[One of the extra] payments were refunded on [date] for the total amount of $115.00. The March payment was refunded on [date] of a partial amount of $108.00, I was not informed that they owed me anything until [date], 7 days after the assignment is sent. I can only get the April payment refunded after [date] as their systems won’t receive it until then despite my leave and earnings statement showing the future transfer. [Company] have not terminated the attribution on their end and have never contacted me by phone, email or my [Company] dashboard once the loan was fully paid to inform me that I had to terminate the award through DFAS if they were unable to do so.
In other cases, overpayments accumulate in award savings accounts and are slowly reduced by dormancy and other unwanted charges. Servicemen also say they have had difficulty obtaining information from the banks where these allowances are deposited, stopping payments and recovering their funds.
Remain vigilant to stop housing estate abuse
Although steps have been taken to end the abuse, it is clear that more work needs to be done to prevent companies from using the military pay system to their advantage. We know that debt incurred by members and their families is a significant morale issue that impacts military readiness. Beyond the high personal cost to service members and their families, military financial problems impact all Americans. It costs the government hundreds of millions of dollars every year to recruit and replace service members when financial problems lead to their security clearances being revoked or their complete separation from the military.
The CFPB is committed to ensuring service members and their families have high levels of financial readiness, so troops can stay focused on the mission. If you are a military member and believe you have been treated unfairly by a company through the military attribution system, file a complaint online. Complaints have proven invaluable in our past work on military allowances and we will continue to use them to hold companies accountable for our enforcement and compliance work as we move forward.