The Consumer Financial Protection Bureau said it ordered U.S. Bank and its partner to return about $6.5 million to service members who had been deceived by the terms and costs of subprime auto loans.
The federal agency said U.S. Bank and Dealer Financial Services created a program called MILES — Millitary Installment Loans and Educational Services — that operated near military bases and pitched subprime loans. The companies didn't accurately disclose the finance charge, annual percentage rate, payment schedules and total loan payments, the CFPB said. MILES also understated the cost of other products sold with the loan, the agency said.
And that's not all. The CFPB charged that MILES had service members pay for these deceptive loans through automatic withdrawals from their paychecks.
The agency said one way it found out about the problem was from a parent who said his 21-year-old son, an infantry soldier with good credit, purchased a $20,000 Dodge Ram through five-year MILES loan at 18 percent interest. With all the add-ons, including warranty, his loan payments amounted to more than 70 percent of his take-home pay, the CFPB said. The father told the CFPB he didn't see any education going on as the "E" in MILES suggested.
Under the CFPB's order, U.S. Bank must repay at least $3.2 million of the undisclosed fees to borrowers, and Dealer Financial Services must return about $3.3 million.
Tom Joyce, spokesman for the bank's parent, U.S. Bancorp, said in an email that MILES is meant to help "junior military personnel, with little to no credit history, to obtain affordable rate auto loans and to receive valuable financial education prior to purchasing their first automobile." He said the rates are competitive with those given to borrowers without a credit history.
Joyce added that the company plans to exit MILES and focus on the educational component of the program.