Consumer Bureau Taking Action to Protect Servicemembers from Lending Abuse

Advocate Andy

CFPB calls out abuses of the military allotment system

The Consumer Financial Protection Bureau (CFPB) recently released a blog post detailing ways the agency is working to protect servicemembers from financial abuse. Specifically, the CFPB noted that lenders often steer members of the military and their families into payments through the allotment system - a payment processing service that allocates military pay to creditors. Originally, the system was designed to make paying bills easy during deployments. Now, however, a wide range of payment options exist that may better serve military families.

The CFPB explains:

"The military allotment 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, like arranging Automated Clearing House (ACH) payments or online bill-pay services where the consumer’s bank sends money directly to a creditor. These services are usually free and provide more legal protections than using the allotment system."

Despite the existence of repayment options that protect servicemembers and their paychecks, some suspect lenders essentially force military borrowers to use the allotment system. This can result in soldiers having significant portions of their paychecks committed to repayment and can prevent them from directing their earnings in a way that prioritizes the most important financial obligations.

The bureau notes that abuse of the system is costly and harmful to families. For example, the CFPB notes that a working group convened in 2014 found that over $1.38 billion in military paychecks was funneled through nearly one million allotments to three institutions that were suspected abusers of the allotment system during a single fiscal year.

The CFPB's warning on allotments also provides servicemembers with information on how to file a complaint in cases of abuse of the allotment system:

"The CFPB is committed to ensuring that servicemembers and their families have high levels of financial readiness, so troops can maintain their focus on the mission. If you’re a servicemember and believe that you have been treated unfairly by a company through the military allotment system, file a complaint online. Complaints have proven invaluable in our previous work on military allotments and we will continue to use them to hold companies accountable in our enforcement and compliance work as we move forward."

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Andy Spears is a middle Tennessee writer and policy advocate. He reports on news around public policy issues - education, health care, consumer protection, and more.

Nashville, TN
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