By David Alexander
WASHINGTON (Reuters) - Moving to curb predatory sales practices targeting U.S. military personnel, the Pentagon said on Friday it was reforming its payment system for troops to prevent them from using direct salary deductions to buy consumer goods like cars and computers.
Under the reforms that go into effect Jan. 1, 2015, military personnel will no longer be able to have the Pentagon directly deduct money from their salaries to make installment payments for personal property like cars, washers and dryers or big-screen televisions, a defense official said.
The reforms would not affect purchases that have already been made and are ongoing, but troops would not be able to initiate new transactions for consumer-style goods, the official said. The system could still be used for mortgages, rent, savings, investments and transferring money to relatives.
"Low-lifes that occasionally hang around outside a military base looking for ways to get money out of service members were finding allotments attractive because it put them at or near the head of the line to get paid if they sold a service member something," another defense official explained, speaking on condition of anonymity.
Troops could still set up similar electronic funds payments for consumer goods with their banks, a step that would give them greater legal protections than they now have under the military's so-called allotment system, officials said.
The military system is widely used by uniformed personnel. An analysis by the Defense Finance and Accounting Service found that 1,951,659 allotments were in effect in 2012 and used to make nearly $3.8 billion in payments.
Warrant officers had an average of nearly 6 allotments per person, while commissioned officers and enlisted personnel had almost 4 per person, the analysis found.
Of the top 10 allotment processors, three particular institutions were considered abusers of the system, processing 999,588 allotments worth nearly $1.4 billion in 2012, a defense official said.
In one case, for example, military personnel were sold cars that required them to pay via the allotment system. The firms involved failed to disclose add-on fees, a proper schedule of payment and other loan details that inflated the final cost of the vehicle.
The Consumer Financial Protection Bureau last year ordered the companies involved, which included Minnesota-based U.S. Bank and Kentucky-based Dealers' Financial Services, to reimburse $6.5 million to the troops who used the service.
(Reporting by David Alexander; Editing by Susan Heavey)