The Defense Department and the Consumer Financial Protection Bureau announced a settlement in an enforcement action involving faulty auto loans that will result in financial institutions paying refunds to about 50,000 military service members.
The CFPB ordered U.S. Bank and one of its nonbank partners, Dealers Financial Services, to return about $6.5 million to service members, according to CFPB Director Richard Cordray.
The two companies created MILES the Military Installment Loans and Educational Services program to sell subprime auto loans to active-duty service members in communities near military bases.
According to CFPB, MILES required service members to make payments via DOD’s military discretionary payroll allotment system, but did not accurately disclose the finance charges, annual percentage rate, payment schedule and total payments for the loans associated with the program.
In a statement, Defense Secretary Chuck Hagel said the settlement was the result of collaboration among DOD leaders, the Judge Advocate General Corps and CFPB.
Hagel on June 27 also announced that he has ordered DOD’s comptroller to form an interagency team, which will include bank regulators and members of enforcement agencies, to examine the allotment system to determine if it needs changes to better protect service members. Hagel said he remained “concerned about the potential misuse of the allotment system by lenders.