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Sometimes it seems like troops are not just occasional targets of unscrupulous businesses and lenders, but are actually under siege.
Troops — especially young ones — may be more vulnerable than some other demographic groups, and not just because even the youngest service members have steady paychecks.
Another factor may be the military allotment system, in which troops can have a designated portion of their paychecks automatically sent to cover specified debts.
The Consumer Financial Protection Bureau has cited the military allotment system as being potentially “vulnerable to misuse” because some companies allegedly fail to properly and fully disclose certain fees that may be paid to third-party processors. For example, some troops were not told about a $3 monthly fee to such third-party processors on allotment payments for car loans.
The allotment system, developed decades ago when there were no automatic debits from bank accounts or electronic transfers, is under review by the Defense Department. The CFPB and a number of other federal agencies are involved in the review, which was due to wrap up in December but is late because of the complexity of the issue and the number of agencies involved, a DoD spokesman said.
While all that is being settled, it can’t hurt to be aware of the issues if a business is pressuring you — or one of your buddies — to set up an allotment for a purchase.
For example, did you know you can lose some legal protections by using allotments? In most cases, if an electronic payment that you didn’t authorize is made from your personal bank account, you aren’t liable for the loss if you notify the bank. But you don’t have that protection with allotments. Since they don’t come out of a bank account, you have no administrative recourse once an allotment payment is made.
Allotments also are less flexible than other forms of credit payments, which could put you in a bind in a financial emergency.
Deanna Nelson, an assistant New York attorney general in charge of the Watertown regional office near Fort Drum, told lawmakers last November about her office’s investigation into a company selling high-priced computers. The company’s employees were trained to sell only to soldiers — and to refuse any payment other than by allotment.
One employee told an undercover investigator about dealing with a soldier who could not sign up for another allotment because he was already carrying the maximum of six at one time. The employee bragged about talking the soldier into canceling one of his other allotments so he could sign up for a new one and buy a computer.
Nelson noted that service members are “a very hononrable class of victims who are not likely to cry foul once victimized.”
If any salesperson tells you that your only option is to pay by allotment, ask why — and think long and hard about your decision.
“What’s convenient for the lender may not provide the best protection for you,” said Holly Petraeus, head of the CFPB’s Office of Servicemember Affairs. “Reputable lenders will gladly accept payment by other means.”