Fifth Third Bancorp reached an $18 million settlement with the Consumer Financial Protection Bureau and U.S. Department of Justice to resolve charges that it discriminated against African American and Hispanic borrowers, the CFPB said Monday.
The bureau’s enforcement action calls for Fifth Third to:
- Pay $12 million into a settlement fund that will be distributed to potentially harmed African-American and Hispanic borrowers whose auto loans were financed by Fifth Third between January 2010 and September 2015. “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,” a CFPB statement said. “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 the funds to affected customers.
- Limit dealer reserve -- the percentage of interest a dealership is allowed to add to an auto loan as a fee for arranging the loan -- to 1.25 percentage points above the lender’s wholesale buy rate for loans of 60 months or fewer and to 1 percentage point for loans with terms longer than 60 months. Fifth Third also has the option to offer dealers nondiscretionary compensation, the statement said. The CFPB said the bank had allowed dealers to add as much as 2.5 percent to consumers’ interest rates.
Fifth Third, based in Cincinnati, issued its own statement today, saying: “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. Fifth Third takes the assertions by the CFPB and DOJ very seriously and has agreed to the terms in the orders, which include changing its dealer compensation policy and reimbursing impacted customers in the amount of $18 million. In entering into these settlements, Fifth Third is not paying any civil penalties.”
An investigation by the CFPB and the Department of Justice evaluated Fifth Third’s indirect auto-lending program for compliance under the Equal Credit Opportunity Act. The agencies said that minority borrowers -- African American and Hispanic borrowers -- paid higher interest rates on auto loans than other similarly situated borrowers. From January 2010 through September 2015, thousands of minority borrowers were charged on average $200 more for their auto loans than non-Hispanic white borrowers, the CFPB said.
Fifth Third is the second auto lender to limit dealer reserve as the result of a CFPB enforcement action. In July, American Honda Finance Corp. agreed to cap dealer reserve at 1.25 percent for loans lasting 60 months or fewer and at 1 percent for loans longer than 60 months. As part of the settlement, Honda agreed to pay $24 million to potentially affected consumers.
In December 2013, Ally Financial settled with the CFPB without limiting dealer reserve. Ally paid $98 million -- $80 million in consumer compensation and $18 million in penalties -- under a consent agreement with the CFPB and Justice Department. The settlement administrator began contacting potentially affected customers to distribute their funds in July.
Fifth Third also reached a separate $3.5 million settlement with the CFPB, including a $500,000 civil penalty, for what the CFPB described as deceptive marketing of credit card add-on products.