Some service members who were saddled with hidden and deceptive fees when they received auto loans from U.S. Bank are going to get their money back. The Consumer Financial Protection Bureau (CFPB), a federal watchdog agency, ordered U.S. Bank and a nonbank partner company, Dealers’ Financial Services, to refund roughly $6.5 million for failing to disclose the fees. The action affects those who financed vehicle purchases through the companies’ Military Installment Loans and Educational Services (MILES) program. The two companies, based in Minneapolis, Minn., and Lexington, Ky., respectively, required service members to repay their loans using the military allotment system – allowing the companies to draw money directly from paychecks before the checks were deposited into personal bank accounts. Bringing the allotment system into the equation opened the door for the misuse CFPB uncovered, the agency said in a statement.
With allotments, lenders at times would require service members to use third-party processors that charge fees. By requiring the use of allotments, the companies left service members with no choice but to pay the fees. "This can cost service members more in fees than alternatives like online banking, which are often free," CFPB stated. Furthermore, the companies were not required to disclose the fees – which could add up to about $180 during the course of a typical 60-month MILES loan. U.S. Bank also told service members that payments would be deducted once a month, when in fact they occurred twice monthly. The discrepancy ultimately cost $75 over the duration of a car loan.
Dealers’ Financial Services was cited with understating costs of vehicle service contracts and insurance, and misleading customers into believing the company would pay for all expensive repairs – all adding to the cost of each loan. Besides refunding the deceptive overcharges, the $6.5 million will include $3.3 million in restitution for violating the Truth in Lending Act. The companies also will provide more accurate disclosures, and no longer will require the use of allotments. Affected service members do not have to take any action to receive the money they are due. Under the order, the companies are required to provide victims with either a credit to their bank accounts or a check. More information is available online at http://www.consumerfinance.gov/blog/what-you-should-know-about-military-allotments/.