WASHINGTON, D.C. – Today, the U.S. Department of Defense announced critical new protections for servicemembers using the military discretionary allotment system. The changes announced today will preserve the allotment system while eliminating the aspects that are most frequently abused by businesses that target servicemembers.
CFPB Assistant Director for Servicemember Affairs Holly Petraeus issued the following statement regarding the Department of Defense announcement:
“I applaud Secretary Hagel’s decision to update the military discretionary allotment system to provide critical new protections to servicemembers. 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. While CFPB enforcement actions have recovered millions of dollars for thousands of servicemembers harmed by companies using the allotment system, today’s announcement will help prevent future abuses by addressing the problem at its source. We appreciate the efforts of Department of Defense Comptroller Mike McCord in re-examining the allotment system. We look forward to working with our fellow regulators and law enforcement partners to assist the Department in preventing further abuses.”
The military discretionary allotment system allows servicemembers to automatically direct a portion of their paycheck to financial institutions or people of their choosing. However, military personnel using the allotment system instead of other automatic payment options like ACH (Automated Clearing House) can end up losing out on certain legal protections.
Under the regulations announced today, new allotments to purchase, lease or rent personal property will be prohibited. Personal property includes vehicles, appliances and consumer electronics, as well. Allotments made for the purpose of savings, insurance premiums, mortgage or rent payments, support for dependents, or investments will not be affected. The changes do not apply to military retirees or Department of Defense civilian employees.
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.
In 2013, the Secretary of Defense convened an interagency working group to improve the allotment system. Today’s announcement comes after the interagency working group’s review, and will help curb further abuses of the allotment system.
The Consumer Financial Protection Bureau is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives. For more information, visit consumerfinance.gov.