On Friday, the Pentagon announced it is changing its financial management regulation to curtail the types of payments service members are allowed to make to companies directly from their regular paychecks, a move officials said was intended to protect troops from unscrupulous businesses.
The changes will bar military members from using the automatic payments, known as “allotments,” to pay for merchandise, vehicles and several other types of goods. But they appear to be targeted at a particular class of predatory lenders whose entire business models rely mostly or entirely on convincing service members to sign up for financing plans at exorbitant interest rates.
Such vendors tend to proliferate around military bases, but in one famous case, Rome Finance, a company that operated in various states under several different names, set up mall kiosks near military bases and sold laptops, video games and other electronics to at least 17,000 service members at triple-digit interest rates, though the documents the military members were asked to sign masked the actual APR. The company was shut down and ordered to cancel $92 million in fraudulent debts in July.
According to the New York Attorney General, the company’s success was based on the fact that its salespeople were determined not to allow their military customers to pay the actual retail price, but to pressure them into financing agreements paid via military allotments. So a $1,000 laptop, including interest, became a $4,000 laptop.
As the Pentagon noted in its announcement decreeing the new policy, the allotment system made military members especially attractive targets for lenders like Rome, because they were virtually guaranteed that the borrower would continue to make payments as long as he or she remained in the military.
The regulations, which take effect on Jan. 1, will ban service members from using allotments to buy, rent or lease “personal property.” Cars, appliances, furniture and electronics, for example, will be off-limits, but allotments can still be used for basic necessities, including rent, mortgage payments and regular transfers to family members.
This post is part of Jared Serbu’s Inside the DoD Reporter’s Notebook feature. Read more from this edition of Jared’s Notebook.