Finally the government looks to protect our sailors from lenders

[Concernedad]

The government is cracking down on lenders that have taken advantage of tens of thousands military members.

In one action announced Thursday, the Consumer Financial Protection Bureau said it has ordered U.S. Bank (USB, Fortune 500) and another company, Dealers' Financial Services, to refund a combined $6.5 million to more than 50,000 active duty service members to make up for failing to disclose fees and other costs on auto loans.

 

The government agency said the auto loans were marketed to active military members with little credit history, borrowers who were "often young and new to the car buying process."

The size of the refund will vary widely, according to CFPB, but will average around $100.

An investigation of the firms' so-called "MILES" program -- a subprime auto loan program that operated near military bases across the country -- found that U.S. Bank failed to properly disclose fees and other information about the loans, while Dealers' Financial Services understated the costs of add-on products, such as vehicle service or insurance.

For example, marketing materials claimed adding a vehicle service contract would add only a few dollars a month, when it actually cost an average $43 extra per month.

The program also required service members to pay the loans using the military allotment system, which deducts payments directly from military paychecks, but then charged the borrowers $36 in monthly processing fees each year. U.S. Bank did not properly disclose those fees, the CFPB said.

U.S. Bank said in a statement that the MILES program, which was created more than a decade ago, has been "a popular program with young military service people, who faced the prospect of paying much higher interest rates at other lenders." Still, the company said it plans to exit the program, and noted that it had not been fined beyond paying the refunds.

Related: Veterans losing savings to 'pension advance' firms

The CFPB learned of the program from the father of a 21-year-old soldier who said his son had inked a loan agreement that ate up more than 70% of his take-home salary before it even hit his bank account.

Also on Thursday, the Department of Defense announced plans to study other potential abuses of the decades-old military allotment system.

Financial counselors on military bases often tell horror stories of the automatic deductions, said Holly Petraeus, the CFPB's assistant director for Service Member Affairs.

"They tell me about instances where there are service members who are 'allotted out', where they've got virtually all of their paycheck going to allotment before any of it gets to their bank," she said.

Related: Getting into the military is getting tougher

Dealers' Financial Services has agreed to stop requiring borrowers to use military allotments. It said it will now focus on "new potential lending partners that the company believes will provide more competitive financing alternatives to our service member customers."

In an unrelated action, the Federal Trade Commission announced that Mortgage Investors Corporation, which offers mortgage refinance loans to military veterans, would pay a $7.5 million fine for illegal telemarketing practices.

Telemarketers for the firm called more than 5.4 million numbers listed on the national Do Not Call registry, and misstated the terms of their adjustable rate loan products.

[calliecl]

How horrible to take advantage of inexperienced credit borrowers. My son financed his car through USAA and they have been great to deal with. Bought a used car for $10,000 and borrowed $8,000. He has it almost half paid off in 7!months as he has been making extra payments.

[Concernedad]

I once went onto a naval base to teach the kids about investing. The lack of understanding by these sailors was rather shocking. The military should really spend a day teaching these kids (perhaps a part of P-Days) on how to handle their money. 

[Angie]

They do have a financial class, and they also get it again when they go to "A" School.

[Concernedad]

Not sure who teaches it, because the sailors I spoke with, understood nothing. My own son was put put into funds he didn't choose. He says he selected a diversification of funds, but we got his statement in the mail and for some reason he's all in the GIC. 

[Angie]

If you are talking about TSP, the Sailor fills that out and can go on their website at any time to make changes to that. 

The lack of understanding by Sailors really shouldn't shock you they are still young and think they know everything, they don't pay attention all the time to what is told to them.  They do what they want, 'cause they have money in their pockets.   So trying to explain investing to some of them, is like trying to heard cats.  Some get it and some don't.  Many think they will stay for 20 years and get a retirement check so they don't think they need to invest anything. 

[Concernedad]

Angie, I'm not saying you're wrong, but my son said he tried to change his options online and wasn't able to, and was told he needed to get with someone. For what it's worth, this makes no sense to me at all. However, he claims when he looks at his account it shows him in the correct choice, however, when we received a statement for him in the mail it showed otherwise. 

Anyway, my issue for these kids isn't that they're just young and aren't concerned yet with their future (I see this all the time with all ages), but that they had zero understanding of the concept. 

[BunkerQB]

Kids get scammed all the time. Our former sailor was offered this wonderful opportunity to start a "part time" painting company while in school. The company would set him up with a marketing plan, get him customers, etc. Sounded fantastic. They made my son feel like he was singled out for this company. I asked for a copy of the contract for review before he signed it. The fine print stipulated that the person had to purchase around $10,000 worth of equipment and supplies using a credit card with 23% rate of interest. There was no marketing plan, no customer base. It was a scam. They zeroed in on candidates who they thought had parents who would come in and back them up. I thought they were crooks and should have gone to jail.
I went through credit cards, debit cards, credit reports, checking/savings accounts with both sons. One gets it and now owns a house. The other ...  hahaha.... LOL.