After all the crashes, mergers, and investigations that bankers have endured the past few years, you'd think they might've learned a thing or two.
Apparently, you'd be wrong.
According to Reuters, the Consumer Financial Protection Bureau ruled yesterday that U.S. Bank and Dealers' Financial Services had engaged in deceptive lending practices. And as if that weren't bad enough, the two companies had preyed on U.S. military personnel.
Now, the Bureau has ordered them to refund $6.5 million to those affected by shady loan deals.
The probe began when a Massachusetts man contacted the Bureau suspecting that something was fishy with his son's car loan. The man said that the bulk of his son's paychecks were being spent on loan payments and upkeep. After a bit of poking and prodding, the Bureau discovered that the man's concerns were justified and the problem was widespread.
The trouble stems, in part, from the Military Installment Loans and Educational Services program, or MILES. It's provided as a perk to those in the military, allowing them to have loan payments for cars, education, and other things deducted directly from their paycheck.
As convenient as that might sound, it makes fees less noticeable to service members, meaning that it's harder to spot discrepancies. Also, some lenders charge additional fees for using the MILES program -- a fact that isn't always made clear -- and in the end, borrowers may take on bigger loans than they can afford.
On Thursday, the Bureau announced the findings of its investigation -- namely, that U.S. Bank failed to disclose a monthly processing fee associated with its loans, and it didn't make clear the fact that borrowers had to make payments two times each month.
U.S. Bank's non-bank partner, Dealers' Financial Services, was responsible for marketing the MILES program to personnel and processed the bulk of loan applications. The Bureau found that DFS inaccurately represented the cost of certain add-on products.
According to the terms of the settlement, neither company admitted wrongdoing. However, the two will fork over $6.5 million to over 50,000 members of the U.S. military who borrowed through the MILES program. Of that sum, U.S. Bank will pay $3.2 million, and Dealers' Financial Services will contribute $3.3 million.
Not surprisingly, U.S. Bank has washed its hands of the MILES program. DFS plans to continue overseeing it and is in the process of recruiting new lenders. Hopefully, they'll all be more aboveboard this go-round.