Fifth Third Bank settles federal complaints of auto-loan bias

“The CFPB and DOJ alleged pricing disparities occurred for certain protected classes of consumers as a result of the auto dealer’s ability to increase interest rates”, according to Fifth Third Bank spokesperson and Senior Vice President and Director of Communications Larry Magnesen.

CFPB found that the average African-American and Hispanic borrower was obligated to pay over $200 more from January 2010 during the term of the loan because of discrimination, according to the complaint.

In the federal consent decree, subject to a judge’s approval, Fifth Third asserted that it has “treated all of its customers fairly and without regard to race or national origin” and wanted to avoid potentially lengthy litigation.

U.S. Attorney Carter Stewart of the Southern District of Ohio added, “Consumers deserve a level playing field when they enter the marketplace, especially when financing an automobile”.

The Cincinnati-headquartered bank, Fifth Third, violated the Equal Credit Opportunity Act by charging African-American and Hispanic customers higher dealer markups on auto loans than white borrowers, according to CFPB. Citigroup Inc. cut Fifth Third Bancorp from a buy rating to a neutral rating and set a $22.00 price objective for the company.in a research report on Wednesday, July 22nd.

Fifth Third Bank is not involved in transactions between auto dealers and their customers. Fifth Third Bank, the Company’s subsidiary company, give a variety of services and financial products to the fiscal, commercial, retail, governmental, educational and medical sectors, and credit goods, for example installment loans, credit cards, mortgage loans and leases.

The Wall Street Journal cited what the report described as people familiar with the matter who indicated the CFPB was asking Fifth Third Bank to reduce the amount of dealer mark-up it allows in exchange for a reduced monetary settlement with the regulator. The markups had nothing to do with creditworthiness, the CFPB said.

The settlement also requires Fifth Third to improve its monitoring and compliance systems.

The debt protection plan marketed in 2011 replaced an earlier version that started in January 2007 and cost 81 cents per $100 of monthly balances. In a separate issue, the bank also engaged in illegal credit card practices, the regulator said. The consumer protection bureau conducted a joint investigation with the U.S. Justice Department of the bank’s indirect auto lending.

“When considering whether to purchase a contract from a dealer, Fifth Third does not receive or consider any information about a consumer’s race or ethnicity”, the company said in its statement.

But the telemarketers didn’t tell a few customers that if they agreed to get information about the product, then they would be automatically enrolled and charged a fee.

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 Consumer Financial Protection Bureau is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives.