CFPB Takes Action Against Fifth Third Bank for Auto-Lending Discrimination and Illegal Credit Card Practices

On 9/28/2015, the CFPB announced two separate actions against Fifth Third Bank, for discriminatory auto loan pricing and for illegal credit card practices. 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.

Over the time period under review, beginning in January, 2013,  Fifth Third permitted dealers to mark up consumers’ interest rates as much as 2.5 percent. Over the time period under review, Fifth Third permitted dealers to mark up consumers’ interest rates as much as 2.5 percent. The examination evaluated Fifth Third’s indirect auto-lending program for compliance with the Equal Credit Opportunity Act, which prohibits creditors from discriminating against loan applicants in credit transactions on the basis of characteristics such as race and national origin. The CFPB and DOJ’s joint investigation concluded that Fifth Third’s policies resulted in minority borrowers paying higher dealer markups without regard to the creditworthiness of the borrowers, resulting in minority borrowers from January 2010 through September 2015 paying, on average, over $200 more for their auto loans.

The CFPB’s enforcement order was filed today as an administrative action, and DOJ’s proposed order was filed in the U.S. District Court for the Southern District of Ohio. Under the CFPB order, 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. The Bureau did not assess penalties against Fifth Third 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.

• 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: A settlement administrator will contact consumers, distribute the funds, and ensure that borrowers who were harmed receive compensation. The Bureau will provide contact information for the settlement administrator once that person is chosen to address questions that consumers may have about potential payments.

The enforcement order is strikingly similar to the one announced in July 2015 involving American Honda Finance Corporation.  Dealers may recall that AHFC was ordered to pay $24 million in consumer restitution and take the same steps to substantially reduce or eliminate entirely dealer discretion.

The full text of the CFPB’s consent order in the auto lending matter is available at: http://files.consumerfinance.gov/f/201509_cfpb_consent-order-fifth-third-bank.pdf

The DOJ simultaneously filed a complaint and proposed consent order to settle the auto lending matter. The DOJ’s announcement is available at: http://www.justice.gov/justice-news