The Consumer Financial Protection Bureau (CFPB) slapped Fifth Third Bank with a $20 million fine on Tuesday for allegedly forcing auto loan customers to buy unnecessary car insurance policies, and in some cases repossessing their vehicles when they defaulted.
“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,” Director Rohit Chopra said in a statement Tuesday. “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.”
Employees at the Ohio-based bank also illegally opened fake bank accounts for roughly 35,000 customers without their knowledge or consent under a “cross-sell” sales goal initiative from top management, the CFPB alleged. Fifth Third bank managers and branch-level employees had their performance reviews and overall employment tied to meeting sales goals of offering more products to existing customers, CPFB officials said. The fine settles a March 2020 lawsuit CFPB filed against Fifth Third which centered on the unauthorized bank accounts.
As part of the CFPB’s punishment, Fifth Third must compensate the 35,000 customers who had accounts opened in their names. The bank is also banned from creating sales goals that incentivize employees for opening fake accounts. Fifth Third must pay a $15 million penalty for opening the fake accounts and another $5 million for forcing customers who already had auto insurance to get duplicative coverage, CFPB officials said.
Cars repossessed when bogus charges went unpaid
Fifth Third engaged in the auto insurance practice for years, CFPB officials said, adding that the bank charged customers fees for duplicative coverage on cars already insured by another company. Some Fifth Third customers who lapsed on prior coverage but managed to obtain insurance within 30 days of a lapse, were also charged for duplicative coverage, according to the CFPB.
“These borrowers paid over $12.7 million in illegal, worthless fees,” the bureau said in a news release. “While consumers received coverage with no value, Fifth Third Bank profited.”
Fifth Third said in a statement Tuesday that its unauthorized bank accounts practice happened “to a limited number of accounts” between 2010 and 2016. The bank said it voluntarily discontinued its auto insurance practice in January 2019, which was before the CFPB began investigating the company.
“We have already taken significant action to address these legacy matters, including identifying issues and taking the initiative to set things right,” Susan Zaunbrecher, chief legal officer of Fifth Third, said in the statement. “We consistently put our customers at the center of everything we do.”
Fifth Third, which was fined $18 million in 2015 for discriminatory auto loan practices against Black and Hispanic customers, has $62 billion in assets under management as of April. The bank has 1,087 branches across 12 states in the South and Midwest.
Wall Street analysts said paying the $20 million fine will actually save Fifth Third money.
“We believe the actions put these issues to bed and should also result in lower litigation costs over time,” analysts at Jefferies said in a note Tuesday. “The auto repossession item is new to the public, but our understanding is that it relates to a very small percentage of auto loans. The small $5 million fine points to the relative severity of this issue, in our opinion.”
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