By Julian Hattem - 06/27/13 06:05 PM EDT
According to the agency, U.S. Bank and Kentucky-based Dealers' Financial Services targeted active-duty members of the military with a subprime auto loan program but failed to tell them about some of the fees involved.
"We have determined that these two companies developed a joint program that engaged in deceptive marketing and lending practices while providing subprime auto loans to tens of thousands of active-duty military members," CFPB Director Richard Cordray said.
Borrowers were allegedly charged fees that they were not told properly about, misled about the benefits of the loans and were told that payments were due only once a month, when in fact they were due twice a month. Military members ended up paying additional interest as a result of the discrepancy.
The institutions are not being charged civil penalties because they cooperated with the CFPB, Cordray said.
The program used a decades-old system that deducts payments directly from a service member's paycheck before it can be deposited in their bank account. That payment system was originally established before the proliferation of electronic transfers and automatic bank payments, but the CFPB warns that it could pose risks to members of the military.
In a statement, Defense Secretary Chuck HagelChuck HagelThe 13-year wait for 2 widows and a congressman comes to an end Petraeus doubts Syria can be put back together again Obama’s unsettled legacy on Iraq and Afghanistan MORE said that he is "concerned about the potential misuse" of the system, and directed an interagency team to see if changes need to be made.
U.S. Bank said that it took the CFPB concerns seriously "and we apologize for any confusion this program may have caused our customers."
For its part, the FTC is making a major home loan refinancer, Mortgage Investors Corporation, pay $7.5 million for calling current and former military members who were placed on the national Do Not Call list.
The fine is the largest the FTC has ever collected for violating its telemarketing rule preventing calls to consumers who don't want them.
According to the agency, the company called more than 5.4 million current and former military members whose numbers were on the list and mislead them about the mortgages it was offering. The company also allegedly misled consumers about its affiliation with the Department of Veterans Affairs.