WASHINGTON — Defense Secretary Chuck Hagel recently directed a policy change in paycheck allotments which will prohibit service members from allotting pay to buy, lease or rent personal property.
The prohibition includes allotments for the purchase or finance of vehicles, such as automobiles, motorcycles and boats; appliances or household goods, such as washers, dryers and furniture; electronics like laptops, iPads, cell phones and televisions; or other consumer items that are tangible and movable.
The new policy, which becomes effective Jan. 1, 2015, will not affect Airmen’s existing allotments and does not apply to military retiree or civilian employees. According to a Defense Department news release announcing the change, Secretary of Defense Chuck Hagel directed the change following an interagency review conducted in response to a major enforcement action by the Consumer Financial Protection Bureau. “The purpose of this policy change is to eliminate one mechanism that predatory lenders use to take advantage of service members who finance purchases using the military pay allotment system,” said Eric Cuebas, the Air Force Financial Services director.
Under the new policy, service members must certify through myPay or manually on DD Form 2558 under the Uniform Code of Military Justice that the allotment is not for “the purchase, lease, or rental of personal property of or payment toward personal property.” Airmen will still be able to use the allotment system for savings account deposits, investments, to support dependents, pay insurance premiums, mortgages, rents, make Combined Federal Campaign contributions, and U.S. government debt repayments.
Defense officials said a 2012 analysis showed that the top 10 financial institutions that received allotments from service members processed almost two million allotments totaling $3.767 billion. Of the top 10 allotment processors, state law enforcement, consumer advocates, and the financial regulators have flagged three particular institutions as suspected abusers of the allotment system. Those institutions received 999,588 allotments totaling $1.380 billion in fiscal year 2012.
“Although this policy change offers our Airmen some protection from unscrupulous lenders, Airmen must exercise caution any time they choose to borrow money,” Cuebas said. “Airmen who need loans should work with reputable financial institutions and carefully review all the terms of the loan to ensure they don’t fall victim to predatory lenders.”
Airmen who believe they are the victims of predatory lending practices should contact their first sergeant or base legal office for assistance.