CFPB sues Fifth Third for allegedly opening phony accounts

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The Consumer Financial Protection Bureau filed a lawsuit against Fifth Third Bancorp for allegedly opening bank and credit card accounts without consumers’ knowledge and engaging in aggressive sales tactics, allegations similar to those that have dogged Wells Fargo.

The CFPB has alleged that Fifth Third “took insufficient steps to detect and stop” employees from opening phony accounts, issuing credit cards and opening lines of credit on consumers’ accounts to meet sales goals.

Last week, Fifth Third disclosed in a Securities and Exchange Commission that the CFPB intended to file an enforcement action related to “alleged unauthorized account openings,” at the Cincinnati Bank.

Fifth Third responded Monday by calling the lawsuit “unnecessary and unwarranted,” and vowed to defend itself. The $169 billion-asset bank’s chief legal officer, Susan Zaunbrecher, said the bank identified 1,100 unauthorized accounts out of 10 million that were opened between 2010 and 2016. The bank also disclosed that the accounts involved less than $30,000 in improper customer charges that were waived or reimbursed to customers years ago, setting up a fight with its regulator.

The bureau said in a 17-page lawsuit that the Cincinnati bank knew since at least 2008 that phony accounts were being opened by employees but the bank did not stop the practice, which continued through 2016. The lawsuit states that the bank used an incentive-compensation program that rewarded managers and their subordinate employees for selling new products and services to existing customers.

“The Bureau specifically alleges that for years and continuing through at least 2016, Fifth Third used a “cross-sell” strategy to increase the number of products and services it provided to existing customers; used an incentive-compensation program to reward selling new products; and conditioned employee-performance ratings and, in some instances, continued employment on meeting ambitious sales goals,” the CFPB said in a press release.

“In short, Fifth Third focused on its own financial interests to the detriment of consumers,” the CFPB said.

This is third time the agency has flagged a bank for allegedly opening accounts without customers' consent. In 2016, Wells Fargo agreed to a $185 million settlement with regulators, and the bureau began an investigation last year into whether Bank of America also violated federal law by opening accounts without authorization, but has so far not taken any action against the Charlotte, N.C., company.

It also marks the second time this year that the CFPB has filed a lawsuit against a bank that then vowed publicly to fight the agency. Last month, Citizens Financial Group in Providence, R.I., also vowed it would win a lawsuit filed by the CFPB alleging it mishandled claims of credit card billing errors.

The CFPB’s lawsuit, filed in the U.S. District Court for the Northern District of Illinois, alleges that Fifth Third engaged in unfair and abusive acts or practices and violated the Truth in Lending Act and the Truth in Savings Act.

Ninety-six employees who opened unauthorized accounts either were fired or resigned before 2016, when the CFPB began its investigation, Fifth Third said. It also said its compensation and employee incentive structure does not reward retail employees for opening unauthorized accounts, nor does it give them sales quotas or product-specific targets.

"While even a single unauthorized account is one too many, we took appropriate and decisive action to address each situation,” Zaunbrecher said in a press release. “The bank is confident that it has treated its customers fairly. When a federal court examines the evidence, we believe it will agree with Fifth Third that this is a limited and historical event.”

Fifth Third said the CFPB investigated the bank for three years. The bank also said that it has internal controls designed to prevent and detect unauthorized account openings and that it "claws back compensation from employees for accounts that are unused or closed shortly after they were opened.”

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Consumer banking CFPB Financial regulations Sales Sales and marketing Fifth Third Bancorp