U.S. Senators to Hagel: Review of Allotment System Abuses Must Be a Priority
Senators call on Pentagon to issue report that is 8 months overdue
WASHINGTON, DC – U.S. Senators Jack Reed (D-RI), Richard Blumenthal (D-CT), Mark Warner (D-VA), Jeanne Shaheen (D-NH), and Tim Kaine (D-VA) are expressing concern to the Pentagon about the delay in the Department of Defense’s (DOD) review of the service member allotment system, and called on Secretary of Defense Chuck Hagel to expedite DOD’s efforts to identify improvements to the system and better protect service members.
DOD’s allotment system allows service members to automatically direct a portion of their paycheck to certain persons or institutions. Recent press reports indicate some businesses have allegedly been using the allotment system, among other payment mechanisms, to sign service members up for questionable payment plans and then subsequently suing them for failure to pay.
In June of 2013, Secretary Hagel ordered a review of the DOD allotment system, and asked for a report to include recommendations on ways to protect service members from allotment system abuses. The report was due within 180 days (at the end of December 2013).
In mid-April, over four months after the report was due, a DoD spokesman said: “Due to the complex nature of the allotment study in which multiple internal and external stakeholders were engaged, the review has taken longer than anticipated,” said DoD spokesman Navy Commander Bill Urban. “The report is being finalized at this time and is expected to be submitted to [Hagel] for review soon.” However, 3 months later, and nearly 8 months after the initial deadline, the report still hasn’t been completed.
The five Senators wrote to Secretary Hagel this week urging him to expedite the pending report in light of the persistent, demonstrated problems with the system: “given the known problems, we believe that there is an urgent need to improve the allotment system to prevent these sorts of abuses going forward. As such, we urge you to expedite the completion of this report.”
On Tuesday, the Consumer Financial Protection Bureau (CFPB) and 13 State Attorneys General announced a $92 million enforcement action against two businesses that used the allotment system to trap thousands of service members in illegal predatory loans.
“We need to crack down on predatory lenders that target military members,” said Senator Reed, a senior member of both the Senate Armed Services and Senate Banking Committees. “I commend the CFPB’s action this week with regard to these allotment system abuses. It’s time for Secretary Hagel to expedite the DOD report so we can move quickly to prevent similar issues in the future the existing system.”
Senator Reed led the bipartisan effort to create the Office of Service Member Affairs within the CFPB to serve as a watchdog for military personnel. The office monitors financial scams and predatory lending that target servicemembers, veterans, and their families.
“Unfortunately, we have seen time and time again that the allotment system makes it far too easy for bad actors to trap service members in their predatory contracts. I applaud the CFPB for continuing its record of strong enforcement actions and I urge Secretary Hagel to act quickly to stop more service members from falling prey to such schemes,” said Senator Blumenthal.
“Our military men and women should be able to do their jobs without having to worry about predatory lenders taking advantage of them,” Senator Warner said. “The recent crackdown on two businesses abusing the allotment system was a good step, but we need to do more to make sure businesses are treating our military families with respect. I urge Secretary Hagel to complete this important review quickly.”
“Our servicemen and women make tremendous sacrifices to keep us safe and in turn, we should be able to protect them from predatory lenders,” Senator Shaheen said. “The Pentagon needs to complete its review so that we can implement necessary reforms on behalf of our men and women in uniform.”
“Servicemembers and their families face enough challenges as it is – from finding employment after service, to getting timely medical care through the VA. The last thing we should be doing is leaving them at risk from predatory lenders,” said Senator Kaine. “We need to know that DOD considers rooting out allotment system abuses a top priority. I’m pleased to join my colleagues in calling on Secretary Hagel to expedite the ongoing review to ensure our servicemembers are protected from financial scammers.”
Full text of the letter follows (PDF attached):
July 30, 2014
The Honorable Chuck Hagel
Secretary of Defense
1000 Defense Pentagon
Washington, DC 20301-1000
Dear Secretary Hagel:
We write to express concern over the long delay in the Department’s review of the servicemember allotment system. While we recognize the complexity of the issue, we urge you to expedite the Department’s efforts to determine how the allotment system could be improved to protect servicemembers.
The allotment system, which allows merchants to divert payments automatically from a servicemember’s monthly income, unfortunately continues to be abused by unscrupulous actors. For example, there have been press reports about at least one business alleged to be using the allotment system – among other payment arrangements – to sign servicemembers up for questionable payment plans and then suing them for failure to pay. And yesterday, the Consumer Financial Protection Bureau and 13 State Attorneys General announced a $92 million enforcement action against two businesses that used the allotment system to trap thousands of servicemembers in illegal predatory loans.
We applaud this recent enforcement effort, and join in commending you for ordering a review of the Department’s allotment system and for asking for recommendations to protect servicemembers. However, given the known problems, we believe that there is an urgent need to improve the allotment system to prevent these sorts of abuses going forward. As such, we urge you to expedite the completion of this report. We look forward to your prompt response and to working with you to provide servicemembers with the protections they deserve.