U.S. Bancorp (NYSE:USB) and its non-banker partner, Dealers’ Financial Services, agreed to refund around $6.5 million and to stop deceptive marketing and lending practices to settle the claims of the Consumer Financial Protection Bureau (CFPB) in behalf of military-service members who participated in the Military Installment Loans and Educational Services (MILES) program.
U.S. Bancorp And Dealers’ Financial Services Failed To Disclose Allotment Fees
According to CFPB, U.S. Bancorp (NYSE:USB) and Dealers’ Financial Services “failed to properly disclose an allotment fee charged to participants as well as the timing of the allotment payments.” The agency also said that the bank and its partner misrepresented the true cost and coverage of products financed together with the auto loans.
US. Bancorp (NYSE:USB) will reimburse $3.2 million and Dealer’s Financial Services will refund $3.3 million. According to CFPB, the money will be distributed to 50,000 military-service members who became victims of the bank and its partner.
Bancorp Violated Truth In Lending Act
The bureau stated that the bank violated the Truth in Lending Act and the Dodd Frank Wall Street Reform and Consumer Protection Act.
U.S. Bancorp (NYSE:USB) and Dealers’ Financial Services created the MILES program to finance subprime auto loans to military personnel on active duty. Under the program, military-service members are required to use the military allotment system to deduct their auto loan payments from their paychecks automatically.
Richard Cordray, director of CFPB emphasized that the bureau has a special mission to protect military-service members, and will continue to work in making sure that they are treated fairly.
CFPB stated that U.S. Bancorp (NYSE:USB) and Dealers’ Financial Services will be responsible for providing reimbursement to military service members as an account credit or by sending a bank check in the mail. They are not required to take any action on the issue.
The two companies also agreed to amend the MILES program to allow military service members to participate without requiring them to use the military allotment system.
Bancorp Ends The Program
The bureau also required U.S. Bancorp (NYSE:USB) and Dealers’ Financial Services to improve disclosures regarding costs and other material terms of add-on products, and to submit a redress plan for approval. The companies will also submit reports to show their compliance with its orders.
Tom Jones, spokesperson for U.S. Bancorp, said, “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.” The bank decided to end its program.
On the other hand, Jeff Weiss, CEO of Dealers’ Financial Services said, “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.”