Banking & Finance, Law, and Retail

Bank pays $18M settlement for lending discrimination

October 9, 2015
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Fifth Third Center
Cincinnati-based Fifth Third Bancorp has $142 billion in assets and operates 1,153 branches in 10 states, as of March 31, 2018. Courtesy Fifth Third Bank

A bank with a large presence in the region has agreed to pay an $18-million settlement to resolve allegations that it engaged in a pattern or practice of discrimination against African-American and Hispanic borrowers in its indirect auto-lending business.

The U.S. Department of Justice, or DOJ, and the Consumer Financial Protection Bureau, or CFPB, announced the settlement agreement with Cincinnati-based Fifth Third Bank last month. The bank operates in 12 states.

The settlement, which is subject to court approval, includes compensation for African-American and Hispanic borrowers who were overcharged from January 2010 through September 2015 for auto loans and requires changes to the way Fifth Third prices automobile loans.

Fifth Third Bank has agreed to change the way it prices its loans by limiting dealer markup to 1.25 percent for loans of five years or less and 1 percent for loans greater than five years.

Fifth Third has also agreed to pay $3 million for deceptive marketing of credit card add-on products to harmed consumers.

Fifth Third Bank could not be reach for comment today.

The bank is the ninth largest depository indirect auto lender in the U.S.

Discrimination charges

The investigation relates to the bank’s indirect auto-loan practices.

Fifth Third allowed car dealers discretion to mark up a loan’s interest rate from the price Fifth Third initially set, based on a borrower’s objective credit-related factors. 

Dealers received greater payments from Fifth Third for loans that included a higher-interest-rate markup.

As a result, the DOJ and CFPB said thousands of African-American and Hispanic borrowers were charged higher interest rates than non-Hispanic white borrowers.

The agencies claim that Fifth Third Bank charged borrowers higher interest rates because of their race or national origin and not because of the borrowers’ creditworthiness or other objective criteria related to borrower risk.

African-American and Hispanic borrowers paid more than $200 more during the term of the loan than their white counterparts.

The Equal Credit Opportunity Act prohibits such discrimination in all forms of lending, including auto lending.

Future auto loans

The DOJ and CFPB anticipate that Fifth Third’s new caps on discretionary markups will substantially reduce or eliminate these disparities.

“This agreement shows that the indirect auto-lending industry is moving toward a model of dealer compensation that fairly compensates dealers for their work related to loans, while limiting the dealer markup that leads to discriminatory pricing,” said DOJ Principal Deputy Assistant Attorney General Vanita Gupta, head of the Civil Rights Division.

“Consumers deserve a level playing field when they enter the marketplace, especially when financing an automobile,” said U.S. Attorney Carter Stewart of the Southern District of Ohio. “This settlement prevents discrimination in setting the price for auto loans.”

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