Feds rap Fifth Third for car loans, credit cards

The federal Consumer Financial Protection Bureau announced two separate actions against Fifth Third Bank, for discriminatory auto loan pricing and for illegal credit card practices.

The Downtown Cincinnati-based regional bank will pay $18 million to African-American and Hispanic borrowers that were affected by the bank’s auto lending practices. The bank will also change its pricing and compensation system to minimize the risks of discrimination.

Fifth Third will also pay $3 million in relief to credit card customers who were harmed by deceptive marketing of credit card add-on products, the consumer agency said. The bank will also pay a $500,000 penalty.

“We are committed to promoting fair and equal access to credit in the auto finance marketplace,” said Richard Cordray, the agency’s director and a former Ohio attorney general, in a news release. “Fifth Third’s move to a new pricing and compensation system represents a significant step toward protecting consumers from discrimination. We are also obtaining millions of dollars in relief today for consumers affected by deceptive marketing of credit add-on products.”

Fifth Third is one of the nation's largest third-party auto lenders, meaning it issues auto loans after they are negotiated between the dealer and car buyer. Fifth Third sets its interest rates based on the credit worthiness of borrowers, while giving dealers the option to increase the interest rate by as much as 2.5 percent as a markup.

Regulators said those markups ended up charging minorities more for loans regardless of credit risk.

Fifth Third is deciding whether to narrow dealers' discretionary markup to a maximum of 1.25 percent or eliminating dealers' discretion in markups altogether. The bank is also setting up a settlement fund to pay minorities that were affected by discriminatory lending practices.

Regulators said they would not charge penalties against Fifth Third in the auto lending case because of the bank's "pro-active steps" to address the problems under its third-party auto lending.

In a consent order between the bank and the U.S. Department of Justice, Fifth Third neither admitted nor denied the government's accusations about auto loans and said it was settling "for the purpose of avoiding contested litigation" and to "devote its resources to serving its customers." The company said in the order that its policy of permitting dealer markups "is common in the industry and has been for decades."

In a statement issued Tuesday, Fifth Third stressed the auto loans in question were bought after terms had already been set.

"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. "Fifth Third is not involved in the transaction between dealers and their customers."

The bank said it "strongly opposes any type of discrimination" and has monitored its practices for years to safeguard against unfair practices.

"In reaching this settlement, Fifth Third stands firm in its conviction that we have treated and will continue to treat our customers in a fair, open and honest manner," the bank said.

Regulators also cried foul with Fifth Third's credit card practices specifically over its "Debt Protection" add-on product, which the bank sold from 2007 to 2013. Sold via telemarketing and online, the service promised to allow customers to cancel payments under hardships, such as job loss, disability and hospitalization.

Some customers who agreed to be sent information on the program were actually enrolled in the service and charged fees, the consumer agency said. Some customers who received information about the program got marketing materials with misleading or incomplete information about costs and eligibility.