If you are the type of military person who likes to use to paycheck allotments to pay for items like furniture or cars military financial life is about to get a little more annoying.
The Defense Department announced late last week that, starting Jan. 1, they will no longer be allowing troops to set up new allotments for personal property like electronics or vehicles or home goods. Allotments that you currently have for that stuff are safe — nothing new will be permitted.
You can still use the system for new allotments for mortgage or rent payments, child support, investments, charity contributions and repaying the government for equipment they claim your spouse lost (don’t even get me started on that).
Officials say they are getting rid of the allotments as a way of curbing abuse by predatory lenders. A investigation earlier this year in the Washington Post famously identified USA Discounters, which has recently changed its name to USA Living, as a prime example of this kind of abuse.
If you live near a military base you have probably at least seen this store or other “rent to own” stores like it. With marketing targeted at troops and their families, the store sells items under a payment plan with astronomical interest rates. For example, the Washington Post story found, a laptop that typically sold $650 other places for could easily sell for $2,993 after interest and add-ons pushed by the company.
The real trouble comes when the service member halts payment, especially if they live overseas. The company sues in Virginia those who fall behind in payments. The service member does not have to be present for the judgement to go forward, and, in the case of the laptop above, the person who bought it ended up owing $8,626 after the ruling was passed, the story reported.
One of the gimmicks stores like USA Living use to hook troops into buying items regardless of whether or not they can actually afford them, is to set-up payment through paycheck allotment. This guarantees that the creditor gets paid before the money even hits the bank account of the person who bought the item and makes purchasing these things very easy and attractive seeming.
The new DoD rule stops stores like USA Living from using that type of gimmick to get troops into its store.
Our friend Kate over at Paycheck Chronicles hates this change. She says rules like this one take away the personal responsibility of troops to make smart financial decisions. Why not let service members decide for themselves what they can afford and can’t afford? It’s their paycheck. They should be able to handle it. And if they can’t they need to learn from their own mistakes, not be protected by government regulations from making them.
I’m usually with Kate on this personal responsibility stuff, but I don’t know about this one. When rules are designed to make military members a special class of citizens with special financial protections, I tend to vote “no” (… if I actually had a vote. Which I do not). But this?
This seems like a good idea. And here’s why: I am unaware of paycheck allotments being an option for civilians employed by any non-government entity. Being paid by allotment is simply not an option, as far as I know, for companies selling items to those people. So why should it be an option for companies selling items on credit to military personnel? In my view this does not create a special citizen class. Instead, it levels the playing field.
What do you think? Tell us in the comments.
Editor’s note: While I think it’s pretty clear that much of the above is commentary or was shown as part of the Washington Post investigation which I clearly referenced (and never included a statement that they require allotments) representatives of USA Living disagreed. They sent us this note:
“USA Discounters never required allotments, unlike competitors, and has never been accused of any abuse related to the use of allotments. It is irresponsible to report that the voluntary use of allotments – meaning it is the customer’s choice – is somehow a ‘gimmick.’
It is also wrong to report that the company uses allotments to ‘hook troops into buying items regardless of whether or not they can actually afford them.’ In fact, the company’s underwriting process is very detailed and, unlike competitors, focuses primarily on the customer’s ability to pay the obligation, with the credit score most weighted factor. Moreover, the company goes well beyond what is required under the SCRA and has long-standing initiatives and standards that set it apart from others with respect to credit practices.”