Posted On: July 13, 2013

Feds to Lenders: Stop Bilking Soldiers

For years, tens of thousands of military members have been targeted not just by enemy combatants, but also apparently by lenders.
Our Birmingham bankruptcy attorneys understand that the federal government is finally taking action. Late last month, the Consumer Financial Protection Bureau ordered U.S. Bank and Dealers' Financial Services to refund some $6.5 million to more than 50,000 active-duty soldiers and military members.

The reason? These lenders had failed to disclose certain fees and costs to military members taking out auto loans.

These loans were specifically marketed to active military members who had little or bad credit. The borrowers were generally young and fairly naive to the car-purchasing process.

The order for repayment stemmed from an investigation into a program by these companies called "MILES." It was a subprime loan program that was run just outside of military bases across the U.S.

The bank is accused of failing to properly disclose certain information about those loans. The financial services firm, meanwhile, is alleged to have understated the costs of some of the additional products, such as insurance or vehicle maintenance.

One example involves a vehicle service contract that is marketed in a brochure as costing just a few extra dollars each month. In reality, that feature cost an extra $45 monthly.

Additionally, the program mandated that service members make payments on their loans using the military allotment system, which deducted the payments directly out of their military paychecks. But then the lenders hosed them by charging an extra $40 a month in processing fees. The bank never told military borrowers about those fees.

The federal government learned of the program after the father of a 21-year-old soldier alerted authorities when he learned that some 70 percent of his paycheck was being swallowed up by a car loan - before it ever hit his bank account.

This has prompted the Department of Defense to announce its plans to take another look at its military allotment system. There have been numerous instances, according the CFPB, in which military members have been "allotted out." That is, almost all of their paychecks are going to various allotments before it ever reaches their pockets, leaving many perpetually broke.

Active-duty soldiers have also been victimized by banks that wrongfully foreclosed on their homes while they were serving overseas and were unable to protect their financial assets. This was in direct violation of the Soldiers and Sailors Civil Relief Act. For this, Bank of America was ordered to pay some $37 million to settle claims.

Such actions are especially egregious when you consider the difficulty of the transition from soldier to civilian. A recent report released by the U.S. Chamber of Commerce indicates that the unemployment rate for veterans peaked at 15.2 percent in early 2011. Since then, it has fallen by more than half to about 7.2 percent. However, there are still an estimated 160,000 Iraq and Afghanistan war veterans who are unable to find work.

In some cases, employers shy away from hiring former soldiers, believing they are somehow unstable or suffering from post-traumatic stress disorder. Others believe that veterans have a difficult time explaining how their military experience can translate well into the civilian work world.

To speak with an Alabama bankruptcy attorney, contact Eversole Law at 866-831-5292.

Additional Resources:
Feds crack down on lenders bilking military members, June 27, 2013, By Melanie Hicken, CNN Money

Veterans still fighting for survival in tough job market, July 8, 2013, By Angela Johnson, CNN Money

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Debt Collection Abuses Probe Expanded by Feds, June 20, 2013, Birmingham Alabama Bankruptcy Lawyer Blog