The US Military as an institution is so financially attractive that lending companies pursue the organisation with different types of loans. The return is so predictable that non-compliance of payment is nil; they can contest it in court and force borrowers to comply faithfully. As the name implies, military allotment loans are to be paid by allotments—that is an automatic deduction from a serviceman’s monthly take-home pay. This type of credit is deemed advantageous to the borrower because monthly amortisations are directly paid to the lending company. Simply put, this forms an exclusive relationship between lenders and borrowers. But as protection to our military personnel, specific provisions regulate this credit activity.
Involuntary Allotments for Commercial debt
To apply for an involuntary allotment, the lender is required to submit an Involuntary Allotment Application (DD Form 2653) together with an actual certified copy of a civil court‘s judgment order. It must be submitted in two copies, along with the personnel’s full name and social security number for identification. Only then can proceedings commence.
The time it takes for the approval of the application
DFAS has prescribed regulations and procedures to follow, and military members are afforded the time to argue and contest involuntary allotment which usually takes 90 to 120 days before an order is issued. However, if a member does not challenge the queries, then the waiting time to merit an approval is shortened.
How much of the members’ pay can be deducted monthly?
Amount to be deducted from the member’s pay is based on the guidelines of the Consumer Credit Protection Act, 15 U.S.C. covering commercial debts. The deductible amount usually is 25% of the member’s net pay, that is, after all, binding deductions (withholding tax, or debts accrued by the government) are compiled. Also, if there are other mandatory deductions (child or spousal support) that would exhaust the net pay of the applicant, creditors will be advised to reapply.
What is an SCRA?
Service members’ Civil Relief Act is a federal law that is enforceable at all times and not only in the event of war or extreme emergencies. It was devised to protect the legal rights of members in active duty in case of failure to attend judicial proceedings, especially on matters involving outstanding debts and similar military allotment schemes. Therefore, legal proceedings will have to be deferred until the member has taken an official leave from active duty. No prior judgment of the court will be honoured without going through the procedural provisions of the SCRA.
Military Pay Allotments
An allotment refers to funds obtained out of a member’s basic pay. The distribution is entirely at the member’s disposal and may be used as a stand-by fund of the family, to pay off an outstanding military loan or insurance premiums. The monetary allotment may be classified as discretionary or non-discretionary.
The discretionary allotment is voluntary and can be terminated anytime, started or adjusted at the option of the member. Each member is allowed no more than six discretionary allocations which are evenly distributed to two monthly paychecks.
Meanwhile, the non-discretionary allotment may be voluntary or mandated by the courts and therefore could not be stopped, started or adjusted by a member at will. This type of distribution is fully enforced until all obligations have been redeemed.