DOD to ban allotments for personal property purchases

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An airman logs into myPay to check her leave and earnings statement for her paycheck at Shaw Air Force Base, S.C. (Krystal Jeffers/Courtesy of the U.S. Air Force)
From Stripes.com
An airman logs into myPay to check her leave and earnings statement for her paycheck at Shaw Air Force Base, S.C. (Krystal Jeffers/Courtesy of the U.S. Air Force)

DOD to ban allotments for personal property purchases

by: Chris Carroll | .
Stars and Stripes | .
published: November 22, 2014

WASHINGTON — Starting Jan. 1, active-duty troops can no longer use paycheck allotments when purchasing vehicles, furniture, electronics and other personal property.

The policy change announced Friday is a response to abusive practices on the part of some retailers and lenders, Department of Defense officials said, and is designed to keep troops from getting in over their heads financially.

Troops can still designate parts of their paychecks to flow automatically to savings accounts, investments, rent and mortgage payments, payments to family members and other uses, officials say. And allotments already established to pay for personal property can continue.

But with each new allotment or change to an allotment in the myPay system, troops will be required to make a binding certification: “Under penalty of the Uniform Code of Military Justice, I certify that this allotment is NOT for the purchase, lease, or rental of personal property of or payment toward personal property.”

A senior defense official who spoke to reporters on the condition of anonymity said it is not an attempt to dictate behavior to troops or tell them what they should be buying.

“We’re not trying to tell people, whether they’re a colonel or a private, that you can’t buy a big screen TV,” the official said.

The problem, according to the official, is that unscrupulous retailers lure troops to purchase things they can’t afford — often with fine print that hides the real costs — because the allotment system virtually guarantees they’ll be paid, even if it impoverishes the servicemember.

With the end of allotment purchases of cars, motorcycles, computers, kitchen appliances and other goods, troops who want to pay for expensive items on installments will have to go through credit checks, helping to ensure they have the money to make payments, officials said.

A second defense official, likewise speaking on the condition of anonymity, said DOD would not set up active enforcement measures to attempt to weed out improper use of the system.

According to DOD statistics for 2012, the top 10 financial institutions that processed allotments from servicemembers processed nearly 2 million of them worth nearly $3.8 billion. Three of the top 10 institutions, which were identified by state authorities, federal regulators and consumer advocates as suspected abusers of the allotment system, processed nearly a million allotments worth about $1.4 billion that year, a defense official said Friday on the condition of anonymity.

Analysis also showed that both officers and enlisted personnel on average used about 3.5 allotments per person in 2012.

The policy change is the result of a review of the allotment system ordered by Defense Secretary Chuck Hagel last summer when the problem was brought to light by enforcement actions by the Consumer Financial Protection Bureau.

In June 2013, the agency ordered U.S. Bank and a partner company, Dealer’s Financial Services, to return $6.5 million in fees to servicemembers who bought cars with allotments under terms that misrepresented the true costs. And in July this year, citing improper fees, the agency canceled 17,000 finance agreements held by Colfax Capital Corporation and its subsidiary, Culver Capital LLC, turning off paycheck allotments connected to the agreements. That  resulted in $92 million of debt relief, the agency said.

Earlier this year, four Democratic Senators wrote to Hagel, demanding that DOD improve the allotment system to crack down on abuse. Officials noted that the policy change announced Friday is under Hagel’s purview and requires no approval from Congress.

During the interagency review that led to the change, officials considered options ranging from simply warning troops about the dangers of unscrupulous sellers, to abolishing allotments altogether.

In the end, the system was retained because deployed troops often use allotments to get money to family members, or for other responsibilities difficult to handle while potentially serving in a war zone.

Stronger action than a simple warning was necessary, the official said, because “the system is vulnerable and enables people to be taken advantage of.”

carroll.chris@stripes.com
Twitter: @ChrisCarroll_