Making good on its word to track concerns such asquestionable interest rates and discrimination, the ConsumerFinancial Protection Bureau recently sent a stern message thatit is monitoring auto lenders' activities.

The CFPBsaid it has ordered U.S. Bank and one of its nonbank partner companies to returnnearly $6.5 million to military service members for engaging indeceptive auto loan sales and marketing practices.

On June 27, the agency said it charged the bank and Dealers'Financial Services for failing to properly disclose all the feescharged to participants in the companies' Military InstallmentLoans and Educational Services auto loan program and formisrepresenting the true cost and coverage of add-on productsfinanced along with the auto loans.

The MILES program requires service members to repay theirauto loans using the military ­allotment system, which deductspayments directly from a military member's paycheck before thatsalary is deposited in his or her bank account, the CFPBsaid.

The allotment system was created decades ago to help deployedservice members send money home to their families and pay theircreditors at a time when automatic bank payments and electronictransfers were not yet common bank services, according tothe CFPB.

The bureau's examinations found that U.S. Bank, which isresponsible for financing the MILES loans, violated the Truth inLending Act and the Dodd Frank Wall Street Reform and Consumer Protection Act'sprohibition on deceptive acts or practices by failing to properlyinform service members about fees associated with the loan.

“The bureau has a special mission to protect service members,”said CPFB Director Richard Cordray, in a statement. “The MILESprogram failed to properly disclose costs associated with repayingauto loans through the military allotments system and the expensiveauto add-on products sold to active-duty military. We will continueour work to ensure that service members are treated fairly.”

Service members were charged a monthly processing fee for theirautomatic payroll allotments. However, this fee was not properlydisclosed as part of the finance charge, annual percentage rate andtotal payments for the loans, the CFPB said. Over the life of atypical 60-month MILES loan, a borrower would pay approximately$180 in these fees, according to the bureau.

The CFPB said U.S. Bank also failed to properly discloseschedule of payments. Since the bank required service members topay by military allotments, which they knew would be deducted fromtheir paychecks twice a month, U.S. Bank should have informed themthat they had to make payments twice per month.

However, the bank told service members that payments were dueonly once a month and only credited their accounts once a month,according to the CFPB. The lag between when the payment wasdeducted and when it was credited cost service members additionalinterest, which was an extra $75 over the life of a typical MILESloan, the agency said.

In addition, DFS's deceptive practices included understating thecosts of the vehicle service contract. The CFPB said DFS claimed inmarketing materials that the vehicle service contract would addjust a few dollars to the customer's monthly payment when itactually added an average of $43 per month.

The CFPB said DFS also understated the costs of the insurancepolicy. The company told some customers that the insurance policywould cost only a few cents a day, when the true cost averaged 42cents a day, or more than $100 a year.

Service members were also misled about product benefits,according to the CFPB. The MILES marketing materials deceptivelysuggested that the vehicle service contract would protect servicemembers from all expensive car repairs, when many basic parts werenot covered.

Under the CFPB orders, U.S. Bank and DFS agreed to stop deceptive practices, pay restitution to service members,provide refunds or credit without any further action by consumers,stop requiring the use of allotments, improve disclosures and issuecompliance reporting.

In an email to Credit Union Times, Teri Charest withU.S. Bank corporate public relations, said “While we are not beingfined by the agency, we are reimbursing a $3 monthly fee thatcertain customers paid to a third-party processor for servicingtheir automatic payments.”

The bank also said “because the CFPB felt some of thedisclosures on the timing of when ­customer payments were beingapplied to their loans were insufficient, we are also crediting aportion of the interest payments to those borrowers.”

“We take seriously the CFPB's concerns regarding thesedisclosures and certain marketing materials used in conjunctionwith the MILES program,” Charest wrote. “At U.S. Bank, we have highexpectations for ourselves and our company's product offerings, andwe apologize for any confusion this program may have caused ourcustomers.”

U.S. Bank said it intends to exit the MILES loan program,choosing to build an “original objective of financial education,and we will continue to offer and further expand the educationalcomponent of the program, broadening the content and extendingaccess to all military service members.”

The lack of due diligence was clearly where U.S. Bank failed,said Eddie Nevarez, vice president of business development for theNational Auto Loan Network, in Newport Beach, Calif., which countscredit unions among its clients.

“Although I fully agree with the findings and the order of theCFPB, I do not believe it was the intent of U.S. Bank to deceive ormislead their customers,” Nevarez said. “I believe this is more acase of a lack of compliance and risk monitoring.”

While the bank said it plans to leave the MILES program, Nevarezsaid by monitoring and insuring compliance of the program, thefallout could have been avoided.

“We have seen this more times than we should in recent years; itis not until the deceptive and misleading practices are discoveredand out in the open that banks and credit unions take action,”Nevarez said.