Military allotments allow troops to direct part of their paycheck to financial institutions or people. The system was created between the world wars to allow troops to send money home and pay bills while they were deployed, said Holly Petraeus, assistant director of servicemember affairs for the Consumer Financial Protection Bureau.
In 2012, according to the Pentagon, three companies suspected of abusing the system collected more than $1.3 billion from troops.
“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,” Petraeus said in a statement. “Many of them have even required payment by allotment.”
Allotments guarantee the payment to lenders, putting them first in line for troops’ cash. That has left some strapped to meet other obligations. Some companies had set up shadow bank accounts in a servicemember’s name, tacking on fees that made the cost of a laptop computer or television skyrocket, Petraeus said in an interview.
Electronic banking has rendered the system unnecessary for consumer goods, she said.
Defense Secretary Chuck Hagel on Friday announced that troops no longer will be able to buy, lease or rent personal property using allotments beginning Jan. 1.
Guess Hagel was mad because the Obama administration wasn't in on this.