THE VIRGINIAN-PILOT
Copyright (c) 1994, Landmark Communications, Inc.
DATE: Sunday, December 11, 1994 TAG: 9412110080
SECTION: LOCAL PAGE: B1 EDITION: FINAL
SOURCE: BY JACK DORSEY, STAFF WRITER
DATELINE: NORFOLK LENGTH: Long : 112 lines
A Navy Exchange program designed to help young sailors get credit apparently backfired, burdening dozens - perhaps hundreds - with wage garnishments and the threat of poor credit records.
More than 8,600 local credit accounts have been affected, involving nearly $4 million that the exchange claimed in bad debts. Nearly $2.3 million of it remains uncollected. Some of it may never be recovered.
The Navy acknowledges the problem and blames sloppy accounting. Shoe boxes were used to hold payment records and checks or cash were dropped into a plastic basket to be counted later, only to be misfiled or recorded incorrectly.
Hurt most were sailors who used what the Norfolk Exchange once called its ``Home Lay-Away'' plan, a unique no-interest charge system that - unlike traditional lay-away plans - allowed merchandise to be taken home immediately, provided the debts were paid within six months.
But as many sailors soon learned, just making the payments was not enough. Many who say they paid in full still found their wages attached.
The system was poorly devised at best, relying on mechanical bookkeeping rather than automation, said Rear Adm. John T. Kavanaugh, commander of the Navy Exchange Command - the service's department stores.
``If you saw the back (accounting) rooms you would be appalled because everything you did was on a white piece of paper . . . they literally stuck into shoe boxes,'' said Kavanaugh, whose headquarters is in Virginia Beach.
The system has since been changed, replaced with what the Navy calls its NEXCARD - a system that does charge interest and is managed by financial giant CitiCorp.
Service personnel who believe they have been treated unfairly are urged to contact the command, Kavanaugh said.
But many will find it difficult to set the record straight because they don't have proof. They were required to make their payments in person so many used cash and either didn't get receipts or didn't save them.
Petty Officer 2nd Class Paul Hofstad, 29, was able to prove he didn't owe the debt the Navy Exchange claimed. It helped, he said, that he is married to a banker who is a stickler for keeping records.
Hofstad's pay was garnisheed $153 in October for a debt the exchange claimed he had owed since July 1993 - $118 in merchandise, $20 in penalities and $15 as a fee for docking his pay.
The Hofstads' proof was their canceled checks. But it still took several days for two concerned chief petty officers in Hofstad's command to straighten out the matter, and even more to get his money refunded and a letter of apology for his personnel folder.
The Navy refrains from reporting delinquent payments to credit agencies, so they don't damage a sailor's credit history outside the service. But the sailor's command is notified, and frequently, such matters are entered into personnel records where they could hurt chances for security clearances, promotions and other career moves.
``As soon as your command finds out (about a bad debt) it is going to just push you to pay it off. You have no choice,'' Hofstad said.
The Navy is allowed to garnishee a member's pay for just about any government debt. Agencies such as the Navy Exchange merely fill out a DD-139 form and send it off to a disbursing office for payment.
That is what it did in 8,600 cases involving the Home Lay-Away plan.
Kavanaugh said that in about 1,200 of those 8,600 cases, the customer was right and the money refunded.
The exchange reviewed 80,000 of its 120,000 accounts to find out which were in error.
It's difficult to determine the exact number of people who still claim they do not owe the exchange money.
The chiefs who came to Hofstad's aid - Chief Petty Officers Tom Richter and Mark Lynn - say they have reservations about the easy credit program, including some features that were carried over into the new NEXCARD plan.
For example, both were designed to help junior enlisted members obtain their first line of credit where private credit card companies might reject them. Both plans offered even the lowest ranking sailor a purchase limit of $500 in the United States, $1,500 for those living overseas.
The limit for senior service members was $2,000 within the United States, $4,000 overseas.
Another feature has gotten the attention of even the chief of naval operations, and may be lifted: a hefty required minimum purchase - $200 within the United States, $50 overseas.
``That's become a big controversy,'' Kavanaugh said. ``The CNO beats me up when ever we talk about it.''
Some contend the minimum purchase requirement forces sailors to spend more than they had planned, or causes them to buy foolishly.
The reason for the minimum is that NEXCARD is supposed to be for major purchases.
It can't be used for tobacco or cigarettes.
Richter and Lynn, both financial specialists assigned to Norfolk Naval Air Station, went to Hofstad's aid the day they learned his wages had been garnisheed by the Navy.
After tracking his payments and hearing similar stories from other sailors, the two counselors began questioning the program.
``Is the Navy Exchange's credit program helping, or hurting our sailors?'' asked Richter.
``I think it is a sad story all the way around, especially if it is affecting as many as I think it is.
``Initially (the credit plan) came out to help the sailor. Now we are garnisheeing his wages, submitting credit reports. Did we help this individual, or did we totally destroy this individual?''
Kavanaugh, who oversees the operation of 133 exchanges that conducted $2.3 billion in sales worldwide last year, believes it does help.
``We are trying to give the sailor an opportunity to have a credit card, even though maybe his salary doesn't support it,'' he said.
``So very few people will get in trouble with a NEXCARD. But it does give them the opportunity to buy what every other kid in the U.S. has who is 20 to 23 years old, especially if married.'' ILLUSTRATION: Photo
Rear Adm. John T. Kavanaugh, commander of the Navy Exchange Command
by CNB