From staff reports OKLAHOMA CITY – A recent report from the Consumer Financial Protection Bureau states that military borrowers face larger loans, higher interest rates and costlier add-on products.
In an extensive investigation the bureau analyzed more than 20 million auto loans originated between 2018 and 2022, and found that service members typically have larger loans, make smaller down payments and ultimately shoulder higher monthly costs. Last week’s press release stated that service members face greater financial risks than civilian borrowers when taking out credit to buy a car.
The bureau also reported that while service members pay nearly the same for both new and used vehicles as civilian buyers do, service members on average pay more in interest and fees than civilian borrowers do and also make those higher payments for longer. Military borrowers are also less likely to make a down payment, more likely to make a smaller down payment and more likely to make a negative equity trade-in.
One conclusion made in the report stated that because service members are often required to have a personal vehicle for transportation in order to fulfill their military obligations, and because they may be young men and women far away from family support, they may be especially vulnerable to overreaching lending practices and have fewer resources to draw on.
Key findings in the report include: Service members borrow more while putting less down: For new vehicles, service members borrowed an average of $39,000 – $2,200 or more than civilians – while putting down about $1,100 less in down payments. For used vehicles, they financed $27,500 on average, which is almost $400 more than civilians.
Military borrowers pay higher rates over longer terms: Service members faced average annual percentage rates 0.6 percentage points above civilian rates and longer loan terms. This has resulted in service members’ monthly payments averaging $644 for new vehicles, nearly $20 more than for civilian borrowers and nearly $1,300 more over the life of the average new vehicle loan.
Add-on products, including GAP products, increase costs further: More than 70% of service members purchased add-on products and paid on average about $140 more for add-on products than civilians. Warranty, service and maintenance plans were the most common and expensive category of addon products purchased. The second most common was guaranteed asset protection (GAP) products. Service members’ purchase of GAP products increased sharply in 2020, after the Department of Defense changed its interpretation of the Military Lending Act.
The CFPB recently ordered Navy Federal Credit Union to refund more than $95 million in illegal overdraft fees charged to service members, veterans and their families. The CFPB took action against FirstCash and MoneyLion for charging service members illegal and high interest in violation of the Military Lending Act.
In addition, the CFPB’s research found that Reserve and National Guard members were forgoing an estimated $9 million annually by not receiving the interest rate reduction benefit provided by the Service Members Civil Relief Act. The CFPB also proposed a rule to protect service members and other Americans from data brokers selling their sensitive personal information to scammers, stalkers and foreign surveillance operations.
Consumers can submit complaints about financial products or services by visiting the CFPB’s website or by calling (855) 411-CFPB (2372).