Call it collateral damage.

Farmers Capital Bank in Frankfort, Ky., said a change in the rules governing allotments by active-duty service members will shave more than $800,000 off its bottom line next year.

Service members are currently allowed to allot portions of their paycheck to any individual or business they choose. Starting Jan. 1, they will be barred from using the military's discretionary allotment system to pay for big-ticket consumer items such as cars, household appliances or electronics.

The $1.8 billion-asset company processes allotments through a division of its First Citizens Bank in Elizabethtown, Ky. Part of the business has been built around marketing its services to businesses that sell products to military personnel, usually in financing deals. Losing that business will result in reduced processing volume and revenue.

Farmers Capital said in a regulatory filing Friday that it expected "lending activity to service members by third-party lenders [to] decline significantly as more restrictions are applied to the allotment repayment system."

The filing said that new processing volume in 2015 will likely decrease, resulting in a loss of $1.4 million in gross revenue next year.

The Department of Defense, which announced the new allotment policy on Nov. 21, said it was crafted in response to persistent reports that lenders have failed to properly disclose fees and costs associated with purchases for which service members were paying with allotments.

Farmers Capital has always carefully screened the companies for which it processed allotments, Lloyd Hillard Jr., the $1.8 billion-asset company's president and chief executive, said Monday. "We've never dealt with payday lenders, currency exchanges or pawn brokers," he said. "We've been very diligent."

Farmers "was never asked for input" about the new rule, Hillard said. Farmers Capital will continue to process allotments, though he said the company will focus more on building its civilian client base, which account for roughly 40% of it allotment processing business.

The Defense Department's action followed a number of high-profile enforcement actions. In July, the Consumer Financial Protection Bureau won a $92 million settlement against Colfax Capital, a California firm it accused of masking the expensive financing fees it charged for computers, televisions and other electronic goods.

A year earlier, in June 2013, the CFPB obtained a $6.5 million settlement against Dealers' Financial Services, an auto lender that the agency said failed to disclose all the fees it charged on its auto loans.

Holly Petreaus, CFPB's assistant director for service member affairs, was unavailable for comment Tuesday. In a statement last month, she said the military allotment system "has been used by unscrupulous companies that prey on service members as a quick and secure way to get paid."

The new rules "will help prevent future abuses by addressing the problem at its source," she added.

The CFBP was part of an inter-agency working group that helped the Defense Department prepare the revisions to its allotment regulations. The working group also included representatives from the Federal Reserve Board, Office of the Comptroller of the Currency, Federal Deposit Insurance Corp. and National Credit Union Administration.

Farmers Capital's First Citizens unit has been processing allotments for military and civilian clients for more than 30 years. According to Farmers Capital's quarterly filing with the Securities and Exchange Commission, its allotment processing business generated $3.8 million in revenue during the first nine months of this year, representing a slight increase from a year earlier.

The company said in its 2013 annual report that it was counting on a boost from its allotment processing business after a leading competitor, Military Assistance Co., announced plans to exit the business.

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