The Consumer Financial Protection Bureau sent letters this month to several companies that sell retail goods to military servicemembers, advising them to review their websites and other advertising for potentially misleading marketing and to review other practices related to payment by military allotment.
Active-duty servicemembers are not permitted to use allotments to pay for personal property such as vehicles, appliances, and consumer electronics. The CFPB is concerned that companies that are still advertising repayment by way of military allotment may potentially be violating federal consumer financial protection laws.
The military discretionary allotment system allows servicemembers to automatically direct a portion of their paycheck to financial institutions or people of their choosing. However, military personnel using the allotment system instead of other automatic payment options like ACH (Automated Clearing House) can end up losing out on certain legal protections.
To better protect servicemembers, the Department of Defense announced changes to the allotment system last year. The updated regulations, which took effect in January, prohibit new allotments to purchase, lease or rent personal property such as vehicles, appliances and consumer electronics. The regulations do allow allotments made for the purpose of savings, insurance premiums, mortgage or rent payments, support for dependents, or investments. Military retirees and Department of Defense civilian employees were not affected by the changes.
Offering servicemembers misleading information about payment options and allowing servicemembers to pay by allotment when prohibited by the Department of Defense regulations could violate the Dodd-Frank Wall Street Reform and Consumer Protection Act’s prohibition against unfair, deceptive, or abusive acts or practices in consumer financial products or services.
The letters advise the recipients that their advertisements may violate federal law, and that they should review their advertising and practices relating to military allotments. However, the Bureau’s letters are not a finding or ruling that the recipients have actually violated the law.
A sample letter is available here: files.consumerfinance.gov/f/201507_cfpb_sample-allotment-letter.pdf