DOJ announces an $18 million settlement with Fifth Third Bank

WASHINGTON — The U.S. Department of Justice and the Consumer Financial Protection Bureau today announced an $18 million settlement to resolve allegations that Fifth Third Bank engaged in a pattern or practice of discrimination against African-American and Hispanic borrowers in its indirect auto-lending business.

The settlement, which is subject to court approval, includes compensation for African-American and Hispanic borrowers who were overcharged, and requires changes to the way that Fifth Third prices automobile loans.

Specifically, Fifth Third has agreed to change the way it prices its loans by limiting dealer markup to 125 basis points, or 1.25 percent, for loans of 60 months or less, and to 100 basis points, or one percent, for loans greater than 60 months.

The investigation relates to what are called “indirect” auto loans. Rather than taking applications directly from consumers, the bank makes most of its auto loans through car dealers who help their customers pay for their new or used car by submitting their loan application to Fifth Third.

Fifth Third’s previous business practice, like that of many other major auto lenders, allowed car dealers discretion to mark up a loan’s interest rate from the price Fifth Third initially sets based on the borrower’s objective credit-related factors. Dealers received greater payments from Fifth Third for loans that included a higher interest rate markup.