This here is a really big problem.
To keep games fun, it needs to be skill on skill.

So, what do you do with people who "buy" their way to the best armor or game the system?

If you stay within the rules, you lose...

But what is the best way to handle cheaters?
The best way is to write it into the code
... but that is never perfect.

i don't know, there is no good answer.
The only thing i can suggest is as well as your actions stated above, tell your teammates.