CFPB Fines Payment Processor Millions
The CFPB has ordered the Kentucky-based Fort Knox National Company and its subsidiary, Military Assistance Company, to pay $3.1 million in relief to service members who were charged undisclosed fees.
The CFPB said the recurring fees totaled $100 or more.
“Fort Knox National Company and Military Assistance Company enrolled service members without adequately disclosing their fees, and then charged service members without telling them,” CFPB Director Richard Cordray said on Monday. “As a result, service members paid millions of dollars in fees, probably without even knowing it. Today we are taking action and others should take note.”
According to the CFPB, Fort Knox National Company, through its subsidiary, Military Assistance Company (MAC), is one of the nation’s largest third-party processors of military allotments. Under the military allotment system, service members can deduct payments directly from their wages.
“The allotment system was created to help deployed service members send money home to their families and pay their creditors at a time when automatic bank payments and electronic transfers were not yet common bank services,” the CFPB said in a release. “Creditors, such as auto lenders, installment lenders and retail merchants, have in recent years been known to direct service members to use the system to collect payments straight from service member earnings.”
The CFPB claimed that between 2010 and 2014, the company consistently charged recurring, hidden fees against these residual balances. 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.
The CFPB alleged that MAC failed to notify service members that it charged them residual balance fees. The CFPB also said online account information did not include the fees and monthly statements were not sent to service members.
“Tens of thousands of service members had their money slowly drained from their accounts because they were not notified about the charges,” the CFPB alleged. “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.