Key takeaways
- The CFPB has fined Fifth Third Bank $20 million for fraudulent practices, including opening unauthorized accounts and imposing unnecessary auto insurance coverage.
- The bank also must compensate the roughly 35,000 customers affected by its actions.
- Regulators blame Fifth Third’s incentive compensation program for encouraging its employees to take these actions.
Fifth Third Bank is in hot water again with the Consumer Federal Protection Bureau. On July 9, the government agency filed a proposed final judgment and issued an order that, if approved by the court, would require the bank to pay a combined civil penalty of $20 million and compensate approximately 35,000 victims directly impacted by its fraudulent business practices.
One lawsuit, originally filed by the CFPB in March 2020, accused Fifth Third Bank of turning a blind eye to nearly a decade of illegal activity among bank employees, including opening bank accounts, conducting transactions and signing customers up for products and services without their consent.
The second order charged the bank with forcing auto insurance policies on loan borrowers who already had proper coverage. These policies increased monthly payments, unnecessarily triggering additional fees, delinquencies and auto repossessions.
Here's what you need to know about the bank's misconduct and the consequences it's facing.
Why was Fifth Third Bank fined?
Fifth Third Bank, a large regional US bank headquartered in Cincinnati, is facing a sizable civil penalty because employees routinely engaged in the following misconduct, which the bank has been aware of since at least 2008:
- Opening unauthorized deposit and credit card accounts in consumers’ names
- Transferring funds from consumers’ existing accounts to new, improperly opened accounts
- Enrolling consumers in unauthorized online banking services
- Activating unauthorized lines of credit on consumers’ accounts
In addition, Fifth Third employees forced unnecessary auto insurance onto customers, leading to illegal fees and almost 1,000 wrongful auto repossessions. Over half (50%) of customers were charged fees for unnecessary auto coverage policies when they already had coverage or obtained the required coverage within 30 days.
According to the CFPB, an incentive compensation program tied to unreasonable sales goals, performance ratings and, in some cases, employment caused bank employees to engage in unfair and abusive acts or practices violating several laws, including the Consumer Financial Protection Act.
How the fine breaks down
The proposed $20 million penalty breaks down as follows:
- $15 million for acts involved with opening fake accounts in consumers’ names
- $5 million for forcing vehicle coverage onto borrowers with adequate coverage
In addition, the bank’s senior executives and board of directors must address the business practices that led to rampant abuses or face additional penalties.
“These practices cause significant emotional and psychological distress beyond financial loss,” said Mark Shayani, a lawyer with Pacific Attorney Group. “Fake accounts expose customers to identity theft and financial fraud, eroding public confidence in the banking system."
Related CFPB actions
Fifth Third Bank is no stranger to investigations. In 2015, discriminatory auto loan pricing and illegal credit card practices cost the bank a combined $21 million.
It's also not the first time the CFPB has charged a bank with wrongful repossessions. In 2022, it uncovered similar illegal activities at Wells Fargo, which led to a $3.7 billion settlement plus damages paid to affected customers.
Should you consider Fifth Third Bank?
The multi-million dollar penalty, plus the threat of additional consequences if Fifth Third doesn't implement adequate monitoring and oversight, will hopefully give the bank an incentive to improve its business practices. However, there are plenty of alternative big banks to consider if you’re in the market for a new account. Fifth Third Bank needs time to clean house and prove its business practices won’t harm consumers moving forward.
