Locally-based Fifth Third Bank agreed to pay Uncle Sam millions to settle claims it charged black and Hispanic customers higher rates for auto loans.
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Federal officials said the $18 million settlement included compensation for people who were overcharged.
“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.
The company released a statement Monday saying it “strongly opposes any type of discrimination” and said the loans in question weren’t made directly by Fifth Third.
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.
“Consumers deserve a level playing field when they enter the marketplace, especially when financing an automobile”, U.S. Attorney Carter M. Stewart of the Southern District of Ohio said in a statement.
Fifth Third’s previous business practice allowed vehicle dealers’ discretion to mark up a loan’s interest rate from the price Fifth Third initially sets based on the borrower’s objective credit-related factors. The bank let auto dealers mark up loans as much as 2.5 percent regardless of the borrower’s credit standing. When consumers finance automobile purchases from an auto dealership, the dealer often facilitates indirect financing through a third-party lender like Fifth Third, which is the ninth largest depository indirect auto lender in the United States. Fifth Third Bank, the Company’s subsidiary company, provide a range of financial services and products to the commercial retail, financial, governmental, educational and medical sectors, and credit products, like mortgage loans, installment loans, credit cards and leases. The markups had nothing to do with creditworthiness, the CFPB said.
The consumer watchdog also announced Monday a second, separate action against Fifth Third for deceptive marketing practices the bank has already ceased. Fifth Third also has the option under the order to move to non-discretionary dealer compensation.
From 2007 through February 2013, Fifth Third marketed and sold the product to its customers during telemarketing calls and online.
Pay $18 million in damages, including paying $12 million that will go to black and Hispanic customers whose auto loans went through Fifth Third between January 2010 and September 2015.
The settlement fund will be managed by an independent settlement administrator, the bank said.
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The bureau said Fifth Third did not tell customers that they would be enrolled and charged monthly fees by agreeing to receive details about the product, whose cost was also misrepresented. Fifth Third consented to the order without admitting or denying the consumer protection bureau’s findings.
