Fifth Third Bank must pay a total of more than $21 million to settle separate claims by the federal government that the bank's indirect auto-loan business discriminated against African-Americans and that the bank deceptively signed up customers for a credit card add-on product.
The auto lending enforcement actions, issued by the Consumer Financial Protection Bureau and Department of Justice, allege that Fifth Third gave auto dealers too much leeway to use their discretion to boost interest rates — known as "dealer markups" — for reasons other than credit quality.
The CFPB, which along with the DOJ took a similar action against American Honda Finance Corp., said the discretion Fifth Third allowed effectively led to discrimination. The order requires Fifth Third to "substantially reduce or eliminate entirely dealer discretion," pay $18 million in damages to consumers who were harmed and retain a settlement administrator to distribute the funds.
"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," the CFPB said in a press release.
American Banker reported last week that CFPB officials contemplated using one or more enforcement actions against major lenders to force them to limit or eliminate dealer discretion. Honda also agreed to limit its dealer discretion as a result of its deal.
The CFPB issued a separate consent order requiring Fifth Third to pay $3 million in relief to over 24,000 credit card consumers for alleged violations on a federal ban against "deceptive acts or practices." The agency alleged that telemarketers working for the bank deceptively marketed a "debt protection" product for cardholders. On top of the relief for customers, Fifth Third must also pay a $500,000 penalty.
"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," CFPB's press release said.
From December 2011 through September 2012, the bureau added, cardholders received "'fulfillment kits' that contained incorrect descriptions of the product's cost, benefits, exclusions, terms, and conditions."
In an email to American Banker, a spokesman for the bank said, "We are pleased to put both of these matters behind us."
A separate statement released by Fifth Third related only to the auto-lending orders stressed that the bank did not engage directly with borrowers who were affected.
"The orders do not relate to auto loans Fifth Third makes directly with customers, but instead involve retail installment contracts originated by auto dealers and then purchased by Fifth Third," the bank said. "In reaching this settlement, Fifth Third stands firm in its conviction that we have treated and will continue to treat our customers in a fair, open and honest manner. Fifth Third strongly opposes any type of discrimination and has, for many years, monitored for and taken steps to avoid any potential discrimination in its auto finance business, as well as all other areas in which we interact with consumers."