More than 50,000 service members who took out costly auto loans will receive refunds as U.S. Bank and partner Dealers’ Financial Services (DFS) agreed to pay back a total of $6.5 million for their deceptive practices, said the Consumer Financial Protection Bureau (CFPB) last week.
In settlement with the consumer watchdog, the sixth largest bank in the U.S. and its partner will return $3.2 million and $3.3 million, respectively, to more than 50,000 members of the Armed Forces who were greatly affected by the undisclosed expenses of the Military Installment Loans and Educational Services (MILES) program.
Under the agreement, each military borrower will receive an average of $100 without being asked to do anything as prerequisite. U.S. Bank and DFS will distribute the payments either as an account deposit or a check sent through mail, the CFPB said.
It also said that the lenders needed not to be fined because they cooperated with the investigation conducted by its office and the Defense Department.
U.S. Bank and DFS misrepresented the fees, like the total cost of the loan and the fees involved in making payments through the military allotment system, and the coverage of the vehicle service contract included in the loan program.
The MILES program required the utilization of the allotment system to process the payments. However, it failed to properly disclose the monthly fee associated with the process and that the borrowers need to pay twice a month.
The system allows automatic deduction of payments from the service members’ incomes before they receive their paychecks. The military has been using the system since when electronic transfers and automatic payments weren’t available.
To avoid future abuses of the military allotment system by unscrupulous businesses, Defense Secretary Chuck Hagel said that he has ordered a formation of an interagency team to review the system and assess changes that must be made.
The Minnesota-based U.S Bank, as part of the arrangement, also apologized for its deceptive practices.