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Release No: 472-13
June 27, 2013

Statement by Secretary Hagel on Abuse of the Discretionary Allotment System by Financial Services Institutions

            Today the Consumer Financial Protection Bureau (CFPB) announced a major enforcement action regarding abuses of the Department of Defense’s allotment system by a number of financial services institutions.

            The 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. 

            The settlement that CFPB announced today is the culmination of over a year of collaboration between 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. 

            However, I remain concerned about the potential misuse of the allotment system by lenders.  That is why in concert with today’s enforcement action, I have directed the 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.

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