Fifth Third Bank - Auto-Lending Discrimination and Illegal Credit Card Practices
The CFPB has announced it has taken action against Fifth Third Bank for auto-lending discrimination and illegal credit card practices. The Bureau was joined by the Department of Justice in its action involving discriminatory auto loan pricing.
The joint CFPB and Department of Justice (DOJ) auto-lending enforcement action requires Fifth Third to change its pricing and compensation system to minimize the risks of discrimination, and to pay $18 million to harmed African-American and Hispanic borrowers. The CFPB’s action against Fifth Third’s deceptive marketing of credit card add-on products requires the bank to provide an estimated $3 million in relief to eligible harmed consumers and pay a $500,000 penalty.
Fifth Third Bank is a regional bank and insured depository institution. It is headquartered in Cincinnati, Ohio, primarily serving states in the Midwest and Southeast. The bank operates approximately 1,300 branches in 12 states, offering financial services including credit cards, mortgages, home equity lines of credit, and auto loans.
The CFPB and DOJ’s joint investigation concluded that Fifth Third’s policies:
- Resulted in minority borrowers paying higher dealer markups: Fifth Third violated the Equal Credit Opportunity Act by charging African-American and Hispanic borrowers higher dealer markups for their auto loans than non-Hispanic white borrowers. These markups were without regard to the creditworthiness of the borrowers.
- Injured thousands of minority borrowers: Fifth Third’s illegal discriminatory pricing and compensation structure meant thousands of minority borrowers from January 2010 through September 2015 were charged, on average, over $200 more for their auto loans.
Under the CFPB and DOJ's orders, Fifth Third must:
- Substantially reduce or eliminate entirely dealer discretion: Fifth Third will reduce dealer discretion to mark up the interest rate to only 1.25 percent above the buy rate for auto loans with terms of 5 years or less, and 1 percent for auto loans with longer terms. Fifth Third also has the option under the order to move to non-discretionary dealer compensation.
- Pay $18 million in damages for consumer harm: Fifth Third will pay $12 million into a settlement fund that will go to harmed African-American and Hispanic borrowers whose auto loans were financed by Fifth Third between January 2010 and September 2015. Based on a determination by the DOJ and the CFPB, Fifth Third will receive credit of between $5 million and $6 million for remediation it has already provided to harmed consumers whose auto loans were financed by Fifth Third from January 2010 through June 2015. Fifth Third will then pay any additional funds necessary into the settlement fund to bring its total payment to harmed consumers to $18 million.
- Pay to hire a settlement administrator to distribute funds to victims:
The CFPB consent order in the auto lending matter: http://files.consumerfinance.gov/f/201509_cfpb_consent-order-fifth-third...
The DOJ press release: http://www.justice.gov/opa/pr/justice-department-and-consumer-financial-...
The CFPB also took action against Fifth Third for violations of the Dodd-Frank Act for deceptive acts or practices in the marketing and sales of its “Debt Protection” credit card add-on product. (This is the 11th credit card add-on enforcement action the Bureau has taken against companies for illegal practices in the marketing or administration of add-on products and services).
The Bureau found that Fifth Third’s telemarketers deceptively marketed the add-on product during calls. For example, telemarketers did not tell some cardholders that by agreeing to receive information about the product, they were being enrolled and would be charged a fee. In addition, from December 2011 through September 2012, Fifth Third sent cardholders product “fulfillment kits” that contained incorrect descriptions of the product’s cost, benefits, exclusions, terms, and conditions. Among other things, Fifth Third’s illegal practices included: misrepresenting costs and fees for coverage; misrepresenting or omitting information about eligibility for coverage; and illegal practices in the enrollment process.
The CFPB’s order was filed today as an administrative action. The CFPB’s order requires that Fifth Third provide $3 million in relief to roughly 24,500 customers, cease engaging in illegal practices, and pay a $500,000 penalty to the CFPB civil penalty fund.
The CFPB consent order in the credit card add-on matter: http://files.consumerfinance.gov/f/201509_cfpb_consent-order-fifth-third...