U.S. Bancorp (USB:US) and a partner company will repay about $6.5 million to resolve Consumer Financial Protection Bureau claims that they misled miltary-service members who participated in an auto lending program.
The two companies “failed to properly disclose costs associated with repaying auto loans” made to service members under U.S. Bancorp’s Military Installment Loans and Educational Services program, CFPB Director Richard Cordray said today in a statement announcing the settlement.
The Miles program allows young service members with minimal credit history to finance auto purchases, with repayment debited from paychecks through the military’s allotment system, which deducts money before the rest is deposited in a bank.
U.S. Bancorp, based in Minneapolis, will reimburse customers $3.2 million, while its partner, Lexington, Kentucky-based Dealers’ Financial Services will pay $3.3 million. The money will go to more than 50,000 service members, providing an average reimbursement of less than $130 per customer, the CFPB said.
The bank failed to properly disclose a fee that resulted in paying an additional $180 over the life of a 60-month loan, the consumer bureau said. DFS understated the costs of a vehicle service contract and insurance sold with the loans, both of which raised costs to consumers, the agency said.
Tom Joyce, a spokesman for U.S. Bancorp, said the bank will end its program, while noting that it wasn’t fined by CFPB.
“At U.S. Bank, we have high expectations for ourselves and our company’s product offerings, and we apologize for any confusion this program may have caused our customers,” Joyce said in an e-mail.
DFC Global Corp. (DLLR:US), the parent company of DFS, said it cooperated with the CFPB in the investigation and would seek new lender partners now that U.S. Bank is exiting the program.
“We have refocused our attention on negotiations with new potential lending partners that the company believes will provide more competitive financing alternatives to our service member customers,” DFC Chief Executive Officer Jeff Weiss said in a statement.
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