The Consumer Financial Protection Bureau (CFPB) recently highlighted its concerns regarding the use of military allotments for loan repayment, inviting servicemembers who believe they have been treated unfairly by companies seeking repayment through the military allotment system to file complaints with them so that they can investigate further.
A military allotment is an automatic deduction from a servicemember’s military pay that can be designated towards a recurring payment obligation. There are two types of allotments: discretionary and non-discretionary. Discretionary allotments are set up by a servicemember to pay for recurring payments, such as insurance premiums or savings account deposits, and may be stopped at any time. Non-discretionary allotments include payments to a military relief organization, child support, or privatized housing payments. Historically, allotments were used as a means to make direct payments covering financial obligations during periods of deployment.
There are now significant restrictions on the repayment of obligations through military allotments. DoD rules were changed on January 1, 2015 to limit the number of discretionary allotments per month and to prohibit active duty servicemembers from using allotments for certain types of purchases, including: (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 other consumer items that are tangible and moveable. Additionally, the Military Lending Act (MLA) and the rules that implement it generally prohibit creditors from requiring the use of repayment through an allotment as a condition for the extension of credit.
The CFPB and its Office of Servicemember Affairs have long been focused on military allotment issues and on compliance with these rules. In the past, the CFPB has sent letters to companies that sell retail goods to servicemembers advising them to review their marketing and sales practices to ensure they are complying with the law and regulations related to military allotments.
More recently, in a June 2, 2022 blog post by Patrick Brick on the CFPB website, the CFPB expressed its continued concern about allotment abuse:
Instead of a servicemember benefit, some lenders treat the allotment system as a means of prioritizing repayment of that lender’s loan over the servicemember’s payment of other expenses. Lenders ensure they get paid before servicemembers’ paychecks are even in their bank accounts. When allotments are used for bill payment, servicemembers can’t choose the order in which to pay higher priority bills. Allotments have been front and center in many of the CFPB’s military consumer protection lawsuits where lenders either required repayment by allotment, hid junk fees in the pay-by allotment process, or engaged in deceptive marketing and lending practices associated with military allotments. In these actions and others impacting servicemembers, the CFPB has recovered more than $173 million for thousands of military consumers.
According to the CFPB, allotment abuse continues, with some lenders still requiring borrowers to set up allotments to repay loans in violation of the MLA, or circumventing the DoD rules by partnering with banks that create savings accounts specifically for processing allotments from servicemembers to be used for otherwise prohibited purchases. While the CFPB discusses military allotments as an ongoing concern, it has been years since it has publicly announced any action against a company over unfair, deceptive or abusive practices related to military allotments. A recent search of the CFPB’s Consumer Complaint Databased showed six complaints related to military allotments over the past year out of more than 2.7 million total complaints received by the CFPB in that time period. To that end, the recent CFPB blog post appears to be an attempt by the bureau to solicit customer complaints related to these practices it believes remain ongoing.