CFPB Takes Action against Fifth Third Bank for Discriminatory Lending, Deceptive Marketing Practices
The Consumer Financial Protection Bureau (CFPB) announced two separate actions against Fifth Third Bank for discretionary auto loan pricings and for illegal credit card practices.
A joint enforcement action with the U.S. Department of Justice (USDOJ) requires the bank to change its pricing and compensation system to minimize the risks of discrimination, and pay $18 million to harmed black and Hispanic borrowers. For its deceptive marketing of credit card add-on products, the bank will provide an estimated $3 million in relief to eligible consumers and pay a $500,000 penalty.
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.
As an indirect auto lender, Fifth Third sets a risk-based interest rate, or buy rate, that it conveys to auto dealers. The bank then allows auto dealers to charge a higher interest rate when they finalize the deal with the consumer. This is typically called "dealer markup." Markups can generate compensation for dealers while giving them the discretion to charge consumers different rates regardless of consumer creditworthiness. Over the time period under review, Fifth Third permitted dealers to mark up consumers' interest rates as much as 2.5 percent.
This resulted in minority borrowers paying higher dealer markups who were charged, on average more than $200 more for their auto loans. In doing so, the bank violated the Equal Credit Opportunity Act.
As part of the proposed order, 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 five years or less, and 1 percent for loans with longer terms. The bank can also move to non-discretionary dealer compensation. The bank will also hire a settlement administration to distribute the $18 million in damages to minority borrowers who loans were financed between January 2010 and September 2015. The company has already provided between $5 million and $6 million in refunds to some consumers.
Deceptive Marketing of Credit Card Products
From 2007 through February 2013, Fifth Third marketed and sold a debt protection plan to its customers during telemarketing calls and online. The product promised to allow enrolled cardholders to request the cancellation of credit card payments if they experienced certain hardships such as job loss, disability, and hospitalization. Depending on the version of the product, consumers who enrolled were charged a monthly fee of either 0.81 percent or 0.89 percent of their card balance. In September 2012, Fifth Third ceased telemarketing the product and ceased all other enrollments in February 2013.
The bank's telemarketers did not tell some of the cardholders that by agreeing to receive information about the produce, they were being enrolled and charged a fee. The fulfillment kits that were sent to customers contained incorrect descriptions of the product's costs, benefits, exclusions, and terms and conditions.
The administrative active requires the bank to pay $3 million in relief to about 24,500 customers, and a $500,000 fine.
More information about either action can be found on the CFPB website.
You can Buy A Car At the Dealership Like A Pro. Here's How You Can Be Prepared.
So you're finally ready to trade in your current car for a new one! Congratulations on such an important step. If you've never bought a new car before, you may know nothing about the process. To begin with, there are a number of things you should do to get ready to buy the car before you ever step on the dealership lot.
Can you Use Money That Is Mistakenly Deposited Into Your Account?
Have you ever noticed that your bank account somehow had 'extra' money in it even though you knew for a fact it wasn't yours? If so, you are not alone. It happens more often than you would think. All it takes is for a bank teller to type in one wrong number at the time a deposit is being made.
Low Interest Automotive Financing Might Not Be Best Deal After All
Great rates do exist. But even if you are offered a low interest car loan, you can probably save more money by accepting a slightly higher rate and using rebates or other incentives or by getting your own financing and taking the rebates and incentives.
Following These Tips Can Help You Save Your Hard-Earned Money at Tax Time
Many people feel like they just can't get ahead when it comes to money. What you may not know is that saving during tax season can start you on the path to financial security. We urge you to take advantage of tax season to prepare for unexpected emergencies or plan for the future. Here are some tips to help get started.