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Hagel Orders Effort to Protect Allotment System From Lender Abuse

American Forces Press Service

WASHINGTON, June 27, 2013 – In concert with Consumer Financial Protection Bureau enforcement action aimed at financial services institutions abusing the Defense Department’s payroll allotment system, Defense Secretary Chuck Hagel today ordered an interagency effort to determine whether the allotment system needs changes to further protect service members.

The Defense Department’s allotment system allows service members to automatically direct a portion of their paycheck to any bank or individual of their choosing. CFPB found that some lenders were not clearly disclosing the required fees charged by third-party allotment processors.

In a statement, Hagel said the settlement that CFPB announced today is the culmination of more than a year of collaboration among Defense Department leaders, the Judge Advocate General Corps of the military services and the CFPB.

“I want to thank the CFPB for their partnership in helping to protect those who protect this nation and for their ongoing efforts to increase the financial literacy and readiness of our service members,” Hagel said. “However, I remain concerned about the potential misuse of the allotment system by lenders.”

Therefore, the secretary added, he has directed the Defense Department’s comptroller to form an interagency team to assess what changes might be needed in the allotment system going forward.

“This group will include representatives from enforcement agencies and bank regulators, and will report back to me within 180 days on steps the department can take to ensure our discretionary allotment system no longer creates an opportunity for unscrupulous businesses and lenders to take advantage of those who serve in the armed forces,” Hagel said. 

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Related Sites:
Consumer Financial Protection Bureau

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