CFPB Report Finds Servicemembers Pay More Than Civilians in Auto Loan Market

The report found that servicemembers borrowed an average of $39,000 for new vehicles, which the CFPB said is "over $2,200 more than civilians," while putting down roughly $1,100 less. For used vehicles, servicemembers financed $27,500 on average, "almost $400 more than civilians," according to the agency.

Military borrowers also faced average annual percentage rates 0.6 percentage points above civilian rates and longer loan terms. The CFPB said this produced 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."

The agency said servicemembers were also more likely than civilians to roll negative equity from a prior loan into a new one.

The agency said more than 70% of servicemembers purchased add-on products and paid on average about $140 more than civilians for them. "Warranty, service, and maintenance plans were the most common and expensive category of add-on products purchased," the report said, with GAP products ranking second.

According to the CFPB, servicemembers' purchase of GAP products "increased sharply in 2020, after the Department of Defense changed its interpretation of the Military Lending Act."

The bureau tied the findings to characteristics of the population it studied. Because servicemembers are often required to have a personal vehicle to fulfill military obligations, and "because they may be young men and women far away from family supports, they may be especially vulnerable to overreaching lending practices and have fewer resources to draw upon," the agency said.

The CFPB said it recently ordered Navy Federal Credit Union to refund over $95 million in overdraft fees charged to servicemembers, veterans, and their families, and took action against FirstCash and MoneyLion for charging servicemembers "illegal and high interest in violation of the Military Lending Act."

The agency also cited prior research finding that Reserve and National Guard members were forgoing an estimated $9 million annually by not receiving the interest rate reduction benefit provided by the Servicemembers Civil Relief Act.