RSSKentucky-based Fort Knox National Company and its subsidiary, Military Assistance Company (MAC), have been required by the Consumer Financial Protection Bureau to repay $3.1 million. The CFPB alleges that thousands of military service members were illegally charged undisclosed fees. The consent order can be found here.
MAC is one of the nation’s largest third-party processors of military allotments. The military allotment system allows service members to deduct credit payments directly from their earnings. With MAC, service members would set up an allotment that transferred a portion of their pay into a pooled bank account controlled by MAC. Service members would then pay MAC a monthly service charge to have MAC make monthly payments to a creditor out of the account.
On many occasions, however, excess funds accumulated in the payment account, often without service members’ knowledge. Residual balances were left, for example, where a debt that a service member owed was fully paid off but the service member had not yet stopped the automatic paycheck deductions.
The CFPB alleges that MAC charged fees for these residual balances but did not disclose those fees. Fees that were not disclosed include a $5 fee to send a letter to the service member about their residual balance, a $5 fee to send a similar letter to the service member’s current or past creditor and a repeat fee of $12 to $20 if the account sat idle with a positive balance for more than six months. Since the allotment system continually refreshed balances, the fees continued indefinitely.
In addition, the CFPB claims that MAC concealed these fees from service members. MAC did not disclose the fees on their online system in any way, and no statements were ever issued from MAC or from the bank holding the funds. The CFPB claims that these violations were ongoing from 2010 to 2014.
“Tens of thousands of service members had their money slowly drained from their accounts because they were not notified about the charges,” according to the CFPB. “And, since active allotments would replenish the money in the payment account, MAC continued to take such fees in a way that service members could not easily track.”
The consent order required MAC to repay more than $3.1 to service members. In an interesting twist, rather than having MAC identify affected consumers, the Bureau itself will contact service members that are eligible for a repayment from MAC.
