The CFPB announced that it sent warning letters this month to several companies that sell retail goods to military servicemembers regarding their acceptance of payments made through military allotments. The military discretionary allotment system allows servicemembers to automatically direct a portion of their paychecks to financial institutions or others of their choosing. Effective January 1, 2015, Department of Defense rules were changed to prohibit active duty servicemembers from using allotments for the following types of purchases:
(1) vehicles, such as automobiles, motorcycles and boats; (2) appliances or household goods, such as furniture, washers and dryers; (3) electronics, such as laptops, tablets, cell phones and televisions; or (4) other consumer items that are tangible and moveable.
A sample CFPB warning letter advises that the Consumer Financial Protection Act “prohibits unfair, deceptive, and abusive acts and practices in connection with any transaction with a consumer for a consumer financial product or service, or the offering of a consumer financial product or service.” It also includes the following statement:
According to your website, ————– seems to be offering
active-duty servicemembers the option to repay loans by military allotment even after January 1, 2015, when the Department of Defense prohibited servicemembers from allotting their pay to buy, lease, or rent personal property. We have not determined whether your conduct violates the CFPA, but we urge you to review your practices to ensure that you comply with all relevant laws.
This notice does not waive the Bureau’s right to take action based on any violations of Federal law, including violations related to the conduct described above.
In December 2014, the CFPB announced the settlement of a lawsuit filed against a retailer selling merchandise online and in retail stores located near military bases that offered financing through retail installment contracts for alleged unlawful debt collection practices. The lawsuit included claims of alleged unfair conduct by the retailer in connection with the acceptance of payments made through allotments. In April 2015, the CFPB announced a settlement with two companies that processed military allotments and were alleged to have charged fees to servicemembers that the companies failed to adequately disclose.