SAN DIEGO, Calif. – Servicemembers who used the Military Installment Loans and Educational Services auto loans program may soon get a check for $100 – or more – as a refund for fees they were inappropriately charged, the Consumer Financial Protection Bureau announced Thursday.
The MILES program required servicemembers to pay their car loans directly from their pay allotments, before the paycheck was deposited in their bank accounts. But U.S. Bank and Dealers’ Financial Services were using the system to their advantage by failing to disclose fees and understating costs to servicemembers, the financial bureau said.
The two lenders involved in the MILES program must now repay $6.5 million to more than 50,000 servicemembers, and end what the bureau called “deceptive marketing and lending practices targeting active-duty military.” Average refunds will be about $100, though some may be much more.
Servicemembers should receive their refunds automatically and are not required to do anything further for the reimbursement, the bureau said.
“The Bureau has a special mission to protect servicemembers,” said Richard Cordray, director of the Consumer Financial Protection Bureau. “The MILES program failed to properly disclose costs associated with repaying auto loans through the military allotments system and the expensive auto add-on products sold to active-duty military. We will continue our work to ensure that servicemembers are treated fairly.”
The companies also must now stop requiring servicemembers to use the allotment system to pay their auto loans.
Still, Defense Secretary Chuck Hagel said he is concerned about the potential for future abuse of the allotment system, which allows servicemembers to automatically send a portion of their pay to any bank or person they choose. He has asked the DOD’s comptroller to create a team and determine whether changes may be needed.
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