Fifth Third Bank has been fined a total of $21.5m to settle US charges for discriminatory auto loan pricing and deceptive marketing of credit card add-on products to bank customers.
The lender has been imposed a penalty of $18m by the Department of Justice and Consumer Financial Protection Bureau (CFPB) over charges of discrimination against black and Hispanic borrowers in its indirect auto lending business.
The settlement includes compensation for both African-American and Hispanic borrowers who were overcharged, and calls for changes to the bank’s pricing of automobile loans.
The bank has agreed to change the loan pricing way by limiting dealer mark-up to 125 basis points, or 1.25%, in case of loans of 60 months or less, and to 100 basis points, or 1%, for loans greater than 60 months.
CFPB director Richard Cordray said: "We are committed to promoting fair and equal access to credit in the auto finance marketplace. Fifth Third’s move to a new pricing and compensation system represents a significant step toward protecting consumers from discrimination."
In addition, the bank has also reached a $3.5m settlement with the CFPB, including a $500,000 civil penalty over illegal credit card practices.
The lender has been specifically charged over deceptive practices in the marketing and sales of the bank’s "Debt Protection" credit card add-on product.
The product was sold by the bank from 2007 to 2013 through telemarketing and online. It promised to allow enrolled cardholders request cancellation of credit card payments under hardships including job loss, disability, and hospitalisation.
Enrolled consumers were charged a fee of 0.81% or 0.89% of their card balance based on the version of the product. In September 2012, the bank stopped telemarketing the product as well as other enrolments in February 2013.
The Bureau found that the bank’s telemarketers deceptively marketed the add-on product during calls, and some customers who agreed to receive information on the program were actually enrolled in the service and charged fees.
Also, customers received marketing materials with misleading information about its costs and eligibility.