On September 28, 2015, the Consumer Financial Protection Bureau (CFPB) announced two separate actions against Fifth Third Bank. The first action—brought only by the CFPB—relates to Fifth Third Bank’s marketing of credit card add-on products. The second action—a joint action brought by the CFPB and the Department of Justice (DOJ)—relates to Fifth Third Bank’s indirect auto-lending practices.
Credit Card Action
The CFPB’s credit card add-on action against Fifth Third Bank is the CFPB’s 11th credit card add-on enforcement action. The CFPB consent order alleges that Fifth Third Bank engaged in deceptive practices when it marketed and sold credit card add-on products to its consumers through telemarketers who failed to tell consumers that, by agreeing to receive information about products, consumers were being enrolled and would be charged fees. Further, the consent order alleges that Fifth Third Bank sent consumer product “fulfillment kits” that contained incorrect descriptions of products' costs, benefits, exclusions, terms, and conditions.
The credit card consent order requires Fifth Third Bank to
- pay $3 million in restitution to approximately 24,500 consumers;
- pay a $500,000 civil penalty; and
- cease further illegal practices.
In actions separate from the credit card add-on action, the CFPB and DOJ allege that Fifth Third Bank—as an indirect auto-lender—violated the Equal Credit Opportunity Act (ECOA), which prohibits creditors from discriminating against loan applicants in credit transactions on the basis of characteristics such as race and national origin. Specifically, Fifth Third Bank is accused of setting a risk-based interest rate, or “buy rate,” that it extended to auto dealers and permitted those auto dealers, in their discretion, to charge up to a 2.5 percent higher interest rate, or “markup,” to consumers. The CFPB and DOJ investigation revealed that Fifth Third Bank’s policies (i) resulted in minority borrowers paying higher dealer markups regardless of credit worthiness, in violation of the ECOA; and (ii) injured thousands of minority borrowers because those borrowers were charged, on average, over $200 more for their auto loans as a result of the “markups.”
The CFPB auto-lending consent order requires Fifth Third Bank to
- reduce auto dealer discretion to mark up interest rates to only 1.25 percent (rather than 2.5 percent) for auto loans with terms of 5 years or less, and to only 1 percent for auto loans with longer terms;
- pay $18 million into a settlement fund that will go to harmed consumers; and
- hire a settlement administrator to distribute funds to affected consumers.
Notably, the CFPB did not assess penalties against Fifth Third Bank “because of the proactive steps the company is taking that directly address the fair lending risk of discretionary pricing and compensation systems by substantially reducing or eliminating that discretion altogether.”
Prior to the Fifth Third Bank enforcement actions, the CFPB and DOJ made clear that investigation and enforcement of discriminatory practices related to indirect auto lending will be a priority. For instance, in March 2013, the CFPB issued a bulletin stating that it would investigate and hold indirect auto lenders responsible for discriminatory practices. In addition, in September 2014, the CFPB issued an edition of Supervisory Highlights that informed auto-industry lending participants that significantly limiting discretionary pricing adjustments may reduce or eliminate pricing disparities.
You can view the CFPB’s credit card add-on consent order, which was filed as an administrative action, here: http://files.consumerfinance.gov/f/201509_cfpb_consent-order-fifth-third-bank-add-on.pdf.
You can view the CFPB’s auto-lending consent order, which was filed as an administrative action, here: http://files.consumerfinance.gov/f/201509_cfpb_consent-order-fifth-third-bank.pdf.
You can view the DOJ’s announcement of its action against Fifth Third Bank, which was filed in the U.S. District Court for the Southern District of Ohio, here:http://www.justice.gov/opa/pr/justice-department-and-consumer-financial-protection-bureau-reach-settlement-resolve.