WASHINGTON—The CFPB’s crackdown on the practice of dealer mark-up continues, with the agency on Monday announcing an action against Fifth Third Bank for discriminatory auto loan pricing.
Dealer mark-up, also referred to as buy-rate financing, is when the lender provides the dealer with its rates, then allows the F&I department to mark up the rate at their discretion.
The Bureau also announced a separate action against the Cincinnati-based Fifth Third, in this case for illegal credit card practices.
The joint CFPB and Department of Justice auto-lending enforcement action requires Fifth Third to change its pricing and compensation system to minimize the risks of discrimination, and to pay $18 million to harmed African-American and Hispanic borrowers, the CFPB stated.
The CFPB said its investigation found that minority borrowers were paying higher dealer mark-ups. “Fifth Third violated the Equal Credit Opportunity Act by charging African-American and Hispanic borrowers higher dealer mark-ups for their auto loans than non-Hispanic white borrowers. These markups were without regard to the creditworthiness of the borrowers,” the Bureau stated.
The CFPB’s action against Fifth Third’s “deceptive” marketing of credit card add-on products requires the bank to provide an estimated $3-million in relief to eligible harmed consumers and pay a $500,000 penalty.
The Bureau found that Fifth Third’s telemarketers deceptively marketed the add-on product during calls. For example, telemarketers did not tell some cardholders that by agreeing to receive information about the product, they were being enrolled and would be charged a fee. In addition, from December 2011 through September 2012, Fifth Third sent cardholders product “fulfillment kits” that contained incorrect descriptions of the product’s cost, benefits, exclusions, terms, and conditions.
Among other things, Fifth Third’s illegal practices included: misrepresenting costs and fees for coverage; misrepresenting or omitting information about eligibility for coverage; and illegal practices in the enrollment process.
“We are committed to promoting fair and equal access to credit in the auto finance marketplace,” said CFPB Director Richard Cordray in a statement. “Fifth Third’s move to a new pricing and compensation system represents a significant step toward protecting consumers from discrimination. We are also obtaining millions of dollars in relief today for consumers affected by deceptive marketing of credit add-on products.”
“We commend Fifth Third for its commitment to treating all of its customers fairly without regard to race or national origin and its leadership in agreeing to impose lower caps on discretionary markups,” said Principal Deputy Assistant Attorney General Vanita Gupta, head of the Civil Rights Division. “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.”
“Consumers deserve a level playing field when they enter the marketplace, especially when financing an automobile,” said U.S. Attorney Carter M. Stewart of the Southern District of Ohio. “This settlement prevents discrimination in setting the price for auto loans.”