The Consumer Financial Protection Bureau (CFPB) on Tuesday fined Fifth Third Bank $20 million for forcing auto loan customers to buy unnecessary auto insurance and, in some cases, impounding their vehicles when they defaulted on their payments.
“The CFPB has caught Fifth Third Bank illegally loading up auto loans with excessive fees, causing nearly 1,000 families to lose their cars to repossession,” Chief Executive Officer Rohit Chopra said in a statement Tuesday. “We are ordering Fifth Third’s senior executives and board of directors to clean up these broken business practices or face further consequences.”
Employees at the Ohio bank also illegally opened fake accounts for thousands of customers without their knowledge or consent under a “cross-sell” sales target initiative set by top management, the CFPB alleged. The performance of Fifth Third Bank managers and branch-level employees was tied to meeting sales targets to offer more products to existing customers, CFPB officials said. The fine settles a lawsuit the CFPB filed against Fifth Third in March 2020 that targeted the unauthorized bank accounts.
As part of the CFPB’s punishment, Fifth Third must compensate 35,000 customers who opened accounts in their names or were coerced into buying auto insurance. The bank also must not set sales targets that incentivized employees to open fake accounts. Fifth Third must pay a $15 million fine for opening the fake accounts and another $5 million for coercing customers who already had auto insurance to buy duplicate coverage, CFPB officials said.
Cars seized after bogus charges not paid
Fifth Third was in the auto insurance business for years, CFPB officials said, adding that the bank charged customers for duplicate coverage on cars already insured by another company. Some Fifth Third customers who lost their previous coverage but were able to obtain insurance within 30 days of the expiration also were charged for duplicate coverage, the CFPB said.
“These borrowers paid more than $12.7 million in illegal, worthless fees,” the agency said in a news release. “While consumers were getting coverage with no value, Fifth Third Bank was profiting.”
Fifth Third said in a statement Tuesday that its improper bank account practices occurred “at a limited number of accounts” between 2010 and 2016. The bank said it voluntarily closed its auto insurance practice in January 2019, which was before the CFPB opened an investigation into the company.
“We have already taken significant steps to address these legacy issues, including identifying problems and taking the initiative to correct them,” Fifth Third Chief Legal Officer Susan Zaunbrecher 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 discriminating against black and Hispanic auto loans, had $62 billion in assets under management as of April. The bank has 1,087 branches in 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 address these issues and should also result in lower litigation costs over time,” analysts at Jefferies said in a note Tuesday. “The vehicle repossession item is new to the public, but we believe it affects a very small percentage of auto loans. The small $5 million penalty, in our view, reflects the relative severity of this issue.”