There’s been an important policy change in how active-duty members set up future allotment payments to certain creditors.
Any allotments set up before Jan. 1 are not affected. But you can’t set up new allotments to buy, lease or rent consumer items — cars, motorcycles, boats, furniture, washers, laptops, tablets, televisions, cellphones.
The new Defense Department policy applies to any “tangible and movable” personal property.
An allotment is the portion of a military member’s pay and allowances designated to go directly to a particular person or institution — taken out before the paycheck is deposited to your account.
The new policy doesn’t affect other allotments, such as those going to family members, savings accounts, charities and investments, and to pay insurance premiums, mortgages and rent. It also doesn’t apply to military retirees or DoD civilians.
The policy doesn’t mean active-duty members can’t buy these items — it means they can’t use allotments to pay for the items.
As with most people in the civilian community, you can set up regular debits from your checking account to pay these or any other creditors.
Some people have questioned whether the allotment system is an anachronism, especially in an age when anyone can easily arrange for automatic payments from a bank account. But if you’re used to setting up allotments to make these payments, here are some things to keep in mind when setting up debits from your account in the future:
■ If you make several payments by debit, think about timing — spreading the payments between paychecks protects you against expensive fees if you overdraw your account. Although allotments are paid to individuals or companies once a month, the payments are split between the biweekly paychecks of active-duty troops. For example, if you make your car payment by allotment, half of the car payment is deducted midmonth from your pay and held until the end of the month when the other half is deducted. Then the payment is sent to the creditor.
■ Some people use allotments as budgeting tools. After allotments are paid, the rest of the money goes to their bank accounts for spending money. With debits, that might require more effort on your part to avoid fees for overdrawing the account. Hopefully you’re already carefully tracking spending from your bank accounts, so it won’t be as much of a change to regularly subtract those debits.
■ DoD will enforce this prohibition. If you’re trying to set up a new allotment, you’ll have to affirm this statement: “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.” Refusal to affirm that certification will block the allotment.
The policy change followed a review of the allotment system ordered by Defense Secretary Chuck Hagel in 2013. That was spurred by a Consumer Financial Protection Bureau enforcement action against two companies, alleging they required troops to pay by allotments without properly disclosing all fees charged by third-party processors. It’s designed to protect troops from unscrupulous lenders who persuade them to make purchases using allotments in deals that misrepresent the total cost of the items.
But the policy change doesn’t mean some businesses won’t still look to take advantage of troops. Service members are always attractive to predatory lenders because they have a steady, reliable income to their checking accounts.
So troops must stay vigilant. That includes comparison shopping and resisting pressure to buy things that cost more than you can afford — or that you don’t need.
