Fifth Third said Tuesday that it waived charges or reimbursed customers years ago, that the fake accounts involved less than $30,000 in improper charges and that it will work with the CFPB to remediate customers to whom the bank has not already provided compensation.
Liam Kennedy/Bloomberg
Fifth Third Bancorp has agreed to pay $15 million to settle a lawsuit brought by the Consumer Financial Protection Bureau over fake checking accounts, plus $5 million to resolve new revelations about customers who were overcharged for force-placed auto insurance over nearly a decade.
The CFPB said Tuesday that the $214 billion-asset Cincinnati bank force-placed or maintained unnecessary duplicative insurance over 37,000 times, resulting in 1,000 borrowers having their vehicles illegally repossessed. The insurance violations occurred during a nine-year period that ended in 2019, the bureau said.
The settlements also bring an end to contentious litigation that Fifth Third vigorously fought after the CFPB filed suit in 2020, alleging that the bank opened fake accounts that were not authorized by its customers. The CFPB began that investigation in the aftermath of revelations about widespread problems with unauthorized accounts at Wells Fargo.
In a press release Tuesday, CFPB Director Rohit Chopra threatened further action against Fifth Third's top executives.
"The CFPB has caught Fifth Third Bank illegally loading up auto loan bills with excessive charges, with almost 1,000 families losing their cars to repossession," Chopra said. "We are ordering the senior executives and board of directors at Fifth Third to clean up these broken business practices or else face further consequences."
Fifth Third said in a statement that the $15 million fine over sales practices "related to a limited number of accounts opened beginning in 2010 and ending in 2016."
The bank said it waived charges or reimbursed customers years ago and that the fake accounts involved less than $30,000 in improper charges. Fifth Third also said that it will work with the CFPB to remediate customers to whom the bank has not already provided compensation.
"We have already taken significant action to address these legacy matters, including identifying issues and taking the initiative to set things right," said Susan Zaunbrecher, Fifth Third's chief legal officer, in a statement. "We consistently put our customers at the center of everything we do. We are pleased to put these historical matters behind us so we can continue to focus on creating sustainable long-term value for our shareholders, customers, employees and in our communities."
The consent order includes boilerplate language in which Fifth Third admits to the facts "without admitting or denying any of the findings of fact or conclusions of law."
The CFPB was under the leadership of then-Director Kathy Kraninger in 2020 when it filed the fake-accounts lawsuit against Fifth Third. The bureau alleged that the bank knew employees were opening unauthorized accounts without consumers' consent in order to achieve sales goals or obtain incentive rewards. The CFPB also claimed that the bank took insufficient steps to detect and stop the misconduct.
Though Fifth Third litigated the case for more than four years, it decided to settle so that it could move forward with a clean slate, according to a person familiar with the matter. Though the CFPB had argued that Chicago was a hotbed of bad behavior by Fifth Third employees, the bank claimed that it disciplined employees in Chicago, replaced management in the region and changed its incentive compensation practices back in 2011.
"The bank has been consistent in all its pleadings that there was no systemic problem when it came to unauthorized account openings, other than isolated incidents early on," said the person familiar with the company.
It's not clear whether Fifth Third has reserved for the $20 million in penalties, but that total amounts to a one-time hit to the bank's earnings of only $0.02 per share, according to analysts at Jefferies.
"We believe the actions put these issues to bed and should also result in lower litigation costs over time," the Jefferies analysts wrote in a research note, though added that Fifth Third faces the "potential for some modest incremental costs."
On force-placed auto insurance, the consent order requires Fifth Third to come into compliance with the law and pay redress to customers, on top of a $5 million civil money penalty. Fifth Third said that it voluntarily discontinued its force-placed insurance program in 2019.
Forcing insurance on auto loan borrowers, charging premiums for policies that had already terminated and failing to provide sufficient notice of increased monthly payments are considered "unfair" acts in violation of the Consumer Financial Protection Act, the bureau said.
More than 50% of the force-placed insurance policies were charged to borrowers who had either always maintained their own insurance coverage or obtained the coverage within 30 days of a prior policy lapsing, according to the CFPB.
Fifth Third also "illegally charged fees that provided no value at all," the CFPB said. In all, Fifth Third customers paid over $12.7 million in what the CFPB called "illegal, worthless fees."
In addition, the bank did not refund customers directly when the force-placed insurance policies were canceled and instead applied the refunds to consumers' outstanding loan balances. The CFPB said that Fifth Third had its own reinsurance and "made millions by getting paid fees that far exceeded any claim losses under the program."
In its consent order, the CFPB said the bank also failed to notify consumers about increases in the amounts it was charging for preauthorized electronic-fund transfers due to the force-placed insurance, in violation of the Electronic Fund Transfer Act.
The bureau also found that Fifth Third violated the Fair Credit Reporting Act by furnishing inaccurate information about vehicle repossessions to credit reporting agencies.
Fifth Third operates roughly 1,300 branches in 12 states, primarily in the Midwest and Southeast.
Update
This story has been updated to add comments from a person familiar with Fifth Third.
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