FORT SILL, Okla. -- In an effort to stop businesses from taking advantage of Soldiers, the Department of Defense has prohibited the use of allotments to purchase, lease or rent personal property.
The change in the DoD Financial Management Regulation went into effect Jan. 1.
Types of allotments that are prohibited under the policy change include vehicles, appliances, electronics and other consumer items that are tangible and movable.
"A service member will go and purchase something and they purchase it on credit. The service member may be encouraged, strongly encouraged sometimes, to take out allotments," said Katy McClure, Fort Sill Legal Assistance supervisory attorney.
She went on to explain that an allotment is an automatic deduction from the person's wages to pay for that item in installments.
"As a result of that they're typically required to setup an account with a third party bank and then there's a fee associated with that. So in addition to paying for an item that perhaps is already overpriced to begin with and paying an interest rate that's extremely high then they're having the additional charge for the allotment," she said.
Recent examples of companies using hidden or extra fees in their practice include USA Discounters, now known as USA Living, as well as Freedom Stores, Inc. The Consumer Financial Protection Bureau took action against both of them.
USA Living was fined $50,000 and ordered to pay $350,000 restitution to service members as a result of a fee CFPB categorized as a scam.
Freedom Furniture has to pay $2.5 million in restitution to service members and a $100,000 penalty.
"A lot of these companies were taking advantage of the military system. That's part of the reason why it was felt like we needed to change the allotment policy," said McClure.
To start a new allotment using myPay, a service member will see a banner asking them to certify "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 or payment toward personal property."
Without acknowledging this certification the service member cannot start a new allotment. Current allotments are not affected.
"I think it's kind of a perfect storm. I think most of our Soldiers are young and they're not very financially sophisticated and they have a steady paycheck and they also work for an employer, the Department of Defense, that expects and requires service members to pay their debts," said McClure.
Failure to pay debts can subject service members to disciplinary actions and or revocation of their security clearance "which can certainly stop their career," she said.
The change does not prohibit allotments made to savings accounts, support for family members, insurance premiums, mortgages, rents or investments.
It also does not apply to retirees or DoD civilians.
Social Sharing