Fifth Third Bank will pay $18 million to settle Consumer Financial Protection Bureau allegations it discriminated against black and Hispanic consumers by charging some people higher interest rates on auto loans.
The consent orders concern alleged violations of the Equal Credit Opportunity Act. The case involves retail installment contracts originated by auto dealers and then purchased by Fifth Third, not auto loans made directly with customers, according to Larry Magnesen, senior vice president and director of communications at Fifth Third.
The CFPB also alleged Fifth Third violated the Dodd-Frank Act through deceptive acts or practices in the marketing and sales of its "Debt Protection" credit card add-on product.
The Department of Justice and CFPB announced the settlement Monday. An investigation showed Fifth Third’s qualified minority borrowers paid roughly $200 higher during a loan’s term more than white borrowers due to discriminatory practices. The $18 million payout is subject to court approval and includes compensation for borrowers who were overcharged.
The agreement requires changes to the way the Cincinnati-based bank prices automobile loans. Specifically, Fifth Third has agreed to limit dealer markup to 125 basis points, or 1.25%, for loans of 60 months or less, and to 100 basis points, or 1%, for loans greater than 60 months.
"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,” Magnesen said. "Fifth Third strongly opposes any type of discrimination and has, for many years, monitored for an taken steps to avoid any potential discrimination in its auto finance business, as well as all other areas in which we interact with customers."
Fifth Third is not involved in transactions between auto dealers and their customers. According to Magnesen, dealers ask Fifth Third for an offer to purchase the contracts they enter into with customers at a discount - often referred to as the buy rate. The difference between the buy rate and the rate paid by the customer is referred to as "dealer markup" and is the amount the dealer earns for that transaction. Fifth Third also limits the amount that dealers can earn through dealer markup, and are further reducing that as a result of the settlement.
The settlement – once approved -- means an independent administrator will distribute money at no cost to borrowers whom the Department of Justice identifies as victims of discrimination.
The CFPB began examining the practices of Fifth Third in January 2013.