Federal regulators dished out a double dose of enforcement today by taking action against Fifth Third Bank for allegedly charging higher interest rates to minority borrowers for car loans and deceptively marketing credit card add-on products to bank customers.
The Consumer Financial Protection Bureau, along with the Department of Justice, announced today that Fifth Third Bank must pay $18 million to harmed African-American and Hispanic auto loan borrowers, and an additional $3 million in relief to eligible consumers affected by deceptively marketed credit card add-on products.
Fifth Third Bank – which operates approximately 1,300 branches in 12 states – provides what are known as “indirect” auto loans to consumers, meaning it provides auto dealerships with loans at a set, risk-based interest rate and then allows the dealerships to add-on a “dealer markup,” which can then be split between the dealership and the bank.
The Equal Credit Opportunity Act (ECOA) prohibits creditors from discriminating against loan applicants on the basis of categories like race and national origin.
The Bureau and the DOJ began looking into Fifth Third’s compliance with ECOA back in January 2013.
Since then, the agencies found that the bank charged 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.
As a result of the illegal discriminatory pricing and compensation structure, the CFPB alleges that thousands of minority borrowers from January 2010 to September 2015 were charged on average over $200 more for their auto loans.
According to the terms of the settlement [PDF], Fifth Third must:
• 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;
• pay any additional funds necessary into the settlement fund to bring its total payment to harmed consumers to $18 million;
• hire a settlement administrator to distribute funds to victims;
• substantially reduce or eliminate entirely dealer discretion – only 1.25% above buy rate for auto loans with terms of 5 years or less, and 1% for auto loans with longer terms.
Today’s action against Fifth Third Bank is part of a larger joint effort between the CFPB and DOJ to identify and address discrimination in the direct and indirect auto lending market. Earlier this year, the agencies took action against Honda’s financing unit for similar violations. In that case, the company agreed to provide $24 million in restitution to borrowers who were affected by discriminatory loan pricing.
Two years ago, the agencies took action against Ally Financial and Ally Bank. In that case, the company was ordered to pay $80 million in restitution and a $18 million civil penalty.
In addition to the illegal discriminatory pricing action, the CFPB also took action against Fifth Third for violating the Dodd-Frank Act for deceptive acts or practices in the marketing and sales of its “Debt Protection” credit card add-on product.
According to the CFPB, from 2007 through February 2013, Fifth Third deceptively marketed and sold the product to its customers during telemarketing calls and online.
The product was marketed as a promise to allow enrolled cardholders to request the cancellation of credit card payments if they experienced certain hardships such as job loss, disability, and hospitalization.
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, the complaint alleges.
Depending on the version of the product, consumers who enrolled were charged a monthly fee of either 0.81% or 0.89% of their card balance. In September 2012, Fifth Third ceased telemarketing the product and ceased all other enrollments in February 2013.
Additionally, 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, the CFPB claims that 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.
According to the terms of the settlement [PDF], Fifth Third must:
• provide $3 million in relief to roughly 24,500 customers;
• cease engaging in illegal practices; and
• pay a $500,000 penalty to the CFPB’s civil penalty fund.
When you’re dead, you generally can’t come back. It’s also difficult to come back when you’re actually alive, but the government thinks that you’re dead. An 87-year-old on Brooklyn is understandably worried, because Medicaid has declared her dead. If other government services believe them, dead people don’t need to do things like visit doctors or eat, so her income, food stamps, and health insurance would stop. This would be bad.
