A Kentucky company that processed allotment payments will pay about $3.1 million to troops who were allegedly charged hidden fees.

Military Assistance Company, a subsidiary of Kentucky-based Fort Knox National Company, allegedly charged the fees to "tens of thousands" of active-duty and retired military members and federal civilian employees, according to the Consumer Financial Protection Bureau.

CFPB officials announced April 20 they have taken action against the Fort Knox National Company and Military Assistance Company.

Some creditors, such as auto lenders, used third-party processors of military allotments in order to receive payments from troops. Allotments are a portion of a service member's pay and allowances that are designated to go to a particular person or institution.

The allotments in question were put into place before a Defense Department policy change that prohibits active-duty troops from using new allotments to purchase, lease or rent consumer items, as of Jan. 1.

While the agreements with Military Assistance Company directed service members to add a payment processing charge to the allotment amount, other charges also were added, CFPB alleged.

In many cases, extra allotment money accumulated in service members' allotment accounts — for example, when a member did not stop an allotment after the debt was paid off. That resulted in what is called a residual balance.

The company allegedly routinely charged fees against these residual balances, which affected about 30 percent of the troops who used the company's service.

CFPB alleged that Military Assistance Company "slowly drained" the money from account balances without notifying service members. For example, an account that maintained a positive balance for more than six months was charged a recurring fee of $12 to $20.

Company officials could not immediately be reached for comment. But the company agreed to the consent order without admitting or denying any of CFPB's findings of fact — except for the facts necessary to establish CFPB's jurisdiction over the company, documents show.

The agreement was signed by Robert J. Roberts Jr., president and CEO of Fort Knox National Company and Military Assistance Company,

According to the consent order, Military Assistance Company stopped offering this particular allotment processing service in March 2014, and since then has "expended substantial resources to return residual balances to service members."

In 2013, CFPB announced an enforcement action against the Military Installment Loans and Educational Services auto loan program, alleging that MILES had used the military allotment system to its advantage.

The consent order in that case noted that the MILES program was effectively requiring service members to use Military Assistance Company — the MILES "allotment partner" — for processing allotments. Among other things, CFPB alleged that when US Bank financed MILES loans, they charged troops a $3 monthly processing fee for their automatic allotments that was not disclosed up front.

DoD formed an interagency team to review the allotment system in 2013, and the new policy was announced Nov. 21, 2014. It applies to all "tangible and movable" personal property such as cars, boats, motorcycles, washers, dryers, furniture, laptops, tables, televisions and cellphones. It does not apply to such allotments that were already in place before Jan. 1.

Karen has covered military families, quality of life and consumer issues for Military Times for more than 30 years, and is co-author of a chapter on media coverage of military families in the book "A Battle Plan for Supporting Military Families." She previously worked for newspapers in Guam, Norfolk, Jacksonville, Fla., and Athens, Ga.

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