Fifth Third to pay $20 million in fines related to auto repossessions, fraudulent accounts

Fifth Third Bank, which has branches in Michigan and 11 other states, wrongly triggered some 1,000 auto repossessions by charging extra fees for insurance coverage that duplicated what the driver already had in place, according to charges by the Consumer Financial Protection Bureau on Tuesday.

The federal watchdog agency charged that 35,000 bank customers were harmed by a range of illegal activities and practices at Fifth Third, including the drivers who had their cars repossessed. Fifth Third Bank, the CFPB said, conducted repossessions of vehicles when the delinquency was caused by the bank charging unnecessary and duplicative coverage.

The CFPB also said Fifth Third employees were involved with opening fake accounts in the names of its customers. A sales incentive program, the regulator charged, contributed to the opening of unauthorized accounts.

Fifth Third Bank said Tuesday that the bank has agreed to pay a $15 million fine for sales practices and a $5 million fine for auto finance servicing activities.

The Cincinnati-based bank said it has reached a "comprehensive settlement agreement with the Consumer Financial Protection Bureau to resolve both its litigation related to sales practices and an investigation into the bank’s auto finance servicing activities."

Fifth Third said the bank will work with the bureau’s supervisory arm to "develop and implement remediation plans for any customers whom the bank has not already remediated for these issues."

Fifth Third said the settlement resolves "disputed sales practices issues related to a limited number of accounts opened beginning in 2010 and ending in 2016. The settlement also addresses the CFPB’s concerns about an auto collateral protection insurance program that Fifth Third voluntarily discontinued in January 2019."

Susan Zaunbrecher, chief legal officer of Fifth Third, said Tuesday's settlement concludes "both the sales practices litigation with the CFPB, and its separate investigation into certain auto finance servicing activities related to a collateral protection insurance program that the bank shut down in 2019 before the CFPB began its investigation.”

“We have already taken significant action to address these legacy matters," Zaunbrecher said, "including identifying issues and taking the initiative to set things right. We consistently put our customers at the center of everything we do.”

Breaking it down, the CFPB said Tuesday that it ordered Fifth Third Bank to pay a $5 million penalty for forcing vehicle insurance onto borrowers who had coverage. On top of that, the CFPB filed a proposed court order that would require Fifth Third Bank to pay a $15 million penalty for opening fake accounts in the names of its customers. The proposed court order bans Fifth Third Bank from setting employee sales goals that incentivize fraudulently opening accounts.

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Rohit Chopra, the agency's director, said Fifth Third was caught "illegally loading up auto loan bills with excessive charges, with almost 1,000 families losing their cars to repossession.

"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," Chopra said.

The bank has five branches in the city of Detroit with locations on Gratiot Avenue, near East State Fair; Meyers; Telegraph Road, near West Seven Mile; East Jefferson, near Harbortown, and West Eight Mile Road, near Livernois. The bank has a large footprint with 17 branches in Grand Rapids, plus one or two branches each in a extensive list of Michigan suburbs and cities. In all, Fifth Third has about 165 branches across Michigan.

According to the CFPB, Fifth Third Bank illegally triggered auto repossessions and charged illegal fees by forcing loan borrowers into unnecessary and duplicative coverage policies. The problems arose between 2011 and 2019, according to the CFPB order, when more than 50% of the policies were charged to borrowers who had either always maintained their own coverage or obtained coverage within a 30-day time frame of their prior policy lapsing.

In more than 37,000 instances, the CFPB stated, Fifth Third Bank illegally charged fees that provided no value at all. "These borrowers paid over $12.7 million in illegal, worthless fees," the CFPB stated.

'While consumers received coverage with no value, Fifth Third Bank profited," the CFPB said.

"When the unnecessary or duplicative coverage was cancelled, borrowers were entitled to a refund of the illegally charged fees. But instead of refunding the money directly to borrowers, Fifth Third Bank applied the refunds to consumers’ outstanding loan balances. Fifth Third also reinsured its coverage program and made millions by getting paid fees that far exceeded any claim losses under the program."

Contact personal finance columnist Susan Tompor: stompor@freepress.com. Follow her on X (Twitter) @tompor.