The U.S. Department of Defense last week made it impossible for service members to use the reliable but old-fashioned military allotment system to make auto loan payments -- a small-scale example of a couple of bad apples in auto lending ruining things for everyone else.
In 2013 the CFPB accused an F&I products vendor and its auto lender partner of requiring military service members to sign up for allotments to make their payments.
Allotments are automatically deducted from a service member’s paycheck. In a pre-Internet age, allotments made it convenient for service members to send money home and keep up with their regular payments even when they were deployed overseas.
But the F&I vendor’s use of allotments in today’s electronic era raised red flags for the CFPB. For one thing, the allotments added a $3 monthly service charge. For another, in an age of personal computers and mobile electronic devices, it’s easy for consumers to set up regularly scheduled payments online themselves -- for free.
The CFPB’s enforcement action in 2013 prompted the Defense Department to launch an overhaul of the allotment system. Under new rules announced last week, service members can still use allotments for savings accounts, insurance premiums, mortgage or rent payments, investments and support for dependents.
However, they can no longer use allotments to pay for “personal property.” That specifically makes appliances, consumer electronics and automobiles off limits.