Moving to quell widespread criticism, Secretary of Defense
Aides made clear they didn't intend to issue a blanket waiver for tens of millions of dollars in irregular bonuses and other payments given to California Guard soldiers, however, as some members of Congress have urged.
Carter said he had ordered an expedited review and aimed to resolve all outstanding claims by July 1.
Carter's abrupt order to suspend the effort follows a Los Angeles Times report Saturday that said the Pentagon was demanding repayments from about 9,700 California Guard members who had received enlistment bonuses, student loans or other payments, mostly between 2006 and 2008.
Soldiers argued that it was unfair to require them to repay the money — often $15,000 or more per soldier — when their only mistake was to take financial incentives that recruiters offered. Many served multiple combat tours in Iraq and Afghanistan, and some were badly wounded.
The Times report sparked widespread public outrage, especially since the California Guard said it had warned members of Congress about the problem in 2014. On Tuesday, President Obama ordered the Pentagon to speed up its review of the soldiers' complaints.
Carter, who was traveling in Brussels, said in a statement that he had ordered the Defense Finance and Accounting Service, the Pentagon agency responsible for collecting the repayments, to "suspend all efforts to collect reimbursements from affected California National Guard members, effective as soon as it is practical."
He said the suspension would continue until he was "satisfied that our process is working effectively."
Carter said he ordered a team of senior Defense officials to assess the situation and to create by Jan. 1"a streamlined, centralized process that ensures the fair and equitable treatment of our service members and the rapid resolution of these cases."
"The objective will be to complete the decision-making process on all cases as soon as possible — and no later than July 1, 2017," he said.
"Ultimately, we will provide for a process that puts as little burden as possible on any soldier who received an improper payment through no fault of his or her own," Carter said. "At the same time, it will respect our important obligation to the taxpayer."
About 2,000 soldiers have been told to repay their bonuses. Audits determined they were ineligible and they may have to repay some or all of the money unless Congress passes legislation to forgive the debts.
The California Guard also has demanded repayments from 7,700 other current or former soldiers over paperwork errors, missing documentation or other problems.
Carter said "hundreds of affected Guard members in California had sought and been granted relief" after filing appeals with the Pentagon.
"But that process has simply moved too slowly and in some cases imposed unreasonable burdens on service members," he said. "That is unacceptable."
Soldiers say the appeals process is slow and nerve-wracking for their families. Some had their paychecks garnished even before their appeals were resolved.
"I want to be clear: This process has dragged on too long, for too many service members. Too many cases have languished without action," Carter said. "That's unfair to service members and to taxpayers."
Peter Levine, the acting undersecretary of Defense who is leading the review, told a news briefing at the Pentagon that his office would set criteria for determining when it would waive bonuses and how far it could compensate soldiers who already have repaid.
The Pentagon will not grant a blanket waiver for all the soldiers given improper bonuses or other payments, as some in Congress have urged, because it would set a bad precedent, Levine said.
Some soldiers were asked to repay the money because they didn't complete the six-year enlistment contracts, he noted. Some shifted to other jobs in the Guard or left the military because of injuries sustained in combat but before their contracts had expired.
Forgiving those debts would encourage others not to finish their enlistment terms in expectation they could keep the money, Levine said. "If we make an exception for the person in California who did not meet their service obligation, why would anybody meet their service obligation in the future?" he asked.
Rather than issue a blanket waiver, the Pentagon will handle soldiers' appeals on a case-by-case basis, but more quickly than in the past, Levine added.
One challenge will be to decide whether to reimburse soldiers who already repaid their bonuses, in some cases by refinancing home mortgages or taking other costly steps to obtain the money.
Some are facing debt collection action and tax liens because the California Guard did not have a correct address for them and forwarded the debt to the U.S. Treasury for action.
Levine said the Pentagon cannot correct credit scores for soldiers who were reported to credit rating agencies as having outstanding debts to the U.S. Treasury.
"We do not have authority or the ability to change people's credit records," he said.
The Pentagon also will look at whether some soldiers "knew or should have known" that their bonuses were improper, he added, suggesting that those soldiers would not receive forgiveness.
"Each case is going to need to be evaluated on its own merits," he said. "We need to set up criteria to determine which cases we need to review and how many should be off the table."
National Guard organizations in other states also paid improper enlistment bonuses and are seeking repayments from soldiers, Levine said.
But an Army audit found those overpayments occurred far less frequently than in California. Levine said known cases in other states were in "the dozens, not the thousands."
Members of Congress and veterans groups have applauded Carter's order to suspend the repayments.
"This is a good step from the Pentagon. But it is long overdue and far from enough," said Paul Rieckhoff, founder of Iraq and Afghanistan Veterans of America.
"Thousands of lives have been turned upside down, and veterans who have served honorably are now in financial ruin through no fault of their own," he added. "While it's good for them to know recouping has been halted, that does not make them financially whole or address their urgent needs. Many will be stuck waiting for clarity and the results of the investigation until next year. The Pentagon needs to do more than just halt the recouping; it needs to pay them back — with interest."
Several members of the California delegation in Congress also called for further action. Many were embarrassed to learn from The Times' story that combat veterans in their districts were facing repayment demands, and have scrambled to respond.
Rep. Duncan Hunter (R-Alpine), a member of the House Armed Services Committee, said "it shouldn't be lost on anyone" that Carter could have suspended the payments "at any point since the size and scope of the situation was realized."
In 2014, Denham offered an amendment to a defense bill that would have helped the Pentagon resolve the crisis, but later withdrew the proposal.
2:05 p.m.: This article was updated with comments from the Pentagon official who will head the new review.
11:15 a.m.: This article was updated with reaction from members of Congress.
9:25 a.m.: This article was updated with details from Secretary of Defense Ashton Carter's statement, and the initial reaction to it.