The CFPB has 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. The consent order requires the companies to pay a $3.065 million judgment to be deposited into a fund administered by the CFPB or its agent to be used for redress to injured consumers.

The military allotment system allows servicemembers to automatically direct a portion of their paychecks to creditors or others of their choosing. (Effective January 1, 2015, the system was changed to no longer allow servicemembers to make allotments for certain types of purchases such as vehicles, appliances or household goods, and electronics.)

According to the consent order, allotments of servicemembers who enrolled for the companies’ processing service would be deposited into a bank account controlled by the companies from which the companies paid servicemembers’ creditors. The enrollment instructions directed a servicemember to add a payment processing charge imposed and collected by the companies to the monthly creditor payment to arrive at the allotment amount. Excess funds or “residual balances” would frequently accumulate in the payment account, such as when a servicemember’s debt was paid off but the servicemember had not yet stopped the allotments.

The CFPB claimed that the companies engaged in unfair, deceptive and abusive acts or practices by routinely charging various fees against the residual balances without adequately disclosing such fees before charging them or notifying servicemembers when they incurred such fees. According to the consent order, while monthly letters were sent to servicemembers with residual balances to inform them of the balance amount and how to retrieve funds, the letters did not state the amount or types of residual balance fees that would be charged. In addition to a $5 fee for each such letter, the consent order indicates that the residual balance fees included a $5 fee to send a letter to a servicemember’s current or past creditor indicating that the companies continued to receive the servicemember’s allotment despite it appearing that the creditor had been paid in full, and a monthly dormant fee of $12 to $20 if there was no bill payment activity for six or more months. While servicemembers could access their allotment accounts online, they could not view residual balance fees online and could only see such fees by requesting an account history for which the companies sometimes charged  a fee.

The consent order states that the companies stopped offering the processing service in March 2014 and “since that date have expended substantial resources” to return residual balances to servicemembers. The consent order requires the companies to cooperate with the CFPB to identify and locate servicemembers who paid residual balance fees. It also states that if the CFPB “determines, in its sole discretion that redress to consumers is wholly or practically impracticable or if funds remain after redress is completed, the Bureau may apply any remaining funds for such other equitable relief  (including consumer information remedies) as determined to be reasonably related to the [alleged violations described in the] Consent Order. Any funds not used for equitable relief will be deposited in the U.S. Treasury as disgorgement.”