WASHINGTON (11/24/14)--In an effort to halt predatory lending practices, the Pentagon on Friday announced that it would no longer allow military allotments to be directed to installment payments for personal items such as appliances, cars or consumer electronics.
The military discretionary allotment system allows servicemembers to automatically direct a portion of their paycheck to financial institutions or individuals. However, allotments directed to the purchase, lease or rent of "tangible and movable" personal property such as cars, appliances, electronics and furniture are prohibited after Jan. 1.
"Low-lifes that occasionally hang around outside a military base looking for ways to get money out of servicemembers were finding allotments attractive because it put them at or near the head of the line to get paid if they sold a servicemember something," a Department of Defense official told Reuters (Nov. 21).
"In recent years, the allotment system has been used by unscrupulous companies that prey on servicemembers as a quick and secure way to get paid. Many of them have even required payment by allotment," said Holly Petraeus, Consumer Financial Protection Bureau (CFPB) assistant director for servicemember affairs.
By using the allotment system instead of options such as automated clearing house payments, servicemembers can end up losing out on certain legal protections, the CFPB noted.
Of the top 10 allotment processors, three particular institutions were considered abusers of the system, processing 999,588 allotments worth nearly $1.4 billion in 2012, according to the Reuters report.
The CFPB has taken multiple actions to enforce the law against entities whose businesses were largely premised on receiving payments from servicemembers, often through the military allotment system. In those actions, the CFPB has recovered over $98 million for thousands of consumers.