Forcing loan borrowers into redundant and unnecessary coverage policies, opening fake accounts in customers’ names and providing unauthorized services has resulted in a fine from the Consumer Financial Protection Board (CFPB) for Fifth Third Bank, a large bank holding company headquartered in Cincinnati.

The CFPB has ordered Fifth Third to pay a total of $20m in fines: $15m for its enforcement action targeting the opening of fake accounts, and $5m for the redundant charges. This sum will be deposited into the CFPB’s victim relief fund to compensate the victims.

Duplicative coverage practices

According to the CFPB’s order, Fifth Third offered motor vehicle loans that typically required consumers to maintain insurance that would be used as collateral. Consumers signed agreements stipulating that if they did not maintain insurance, Fifth Third could “force-place” coverage.

However, the CFPB found that over 50% of the force-placed coverage was leveraged against consumers who already had their own insurance or obtained it within 30 days of their previous insurance lapsing. In cases where the unnecessary coverage was cancelled, Fifth Third applied the refund to consumers’ outstanding loan balance instead of providing direct refunds, the CFPB said.

Furthermore, Fifth Third failed to provide notice for increased monthly payments associated with the force-placed coverage and charged premiums for force-placed loans that had lapsed. In its order, the CFPB contended these actions were unfair under the Consumer Financial Protection Act of 2010.

The result of these abusive practices has been dramatic: Around 35,000 borrowers were adversely affected by the redundant coverage fees, with 1,000 losing their cars to repossession.

The CFPB also found that Fifth Third further violated the Fair Credit Reporting Act by furnishing inaccurate information to consumer reporting agencies regarding repossessions.

Fake accounts

The order of $15m in fines resolves a lawsuit initiated by the CFPB in May of 2020 in the Northern District of Illinois accusing Fifth Third of violating the Fair Credit Reporting Act, the Truth in Lending Act and the Truth in Savings Act.

The CFPB warned that these sales strategies, while innocuous on their face, were not judiciously implemented and had the potential to induce employees to engage in misconduct.

According to the complaint, the bank’s employees created fake customer accounts and used a “cross-sell” strategy to increase the number of products and services it provided to existing customers.

More specifically, the CFPB said that, without proper authorization, the bank “opened deposit accounts in consumers’ names; transferred funds from consumers’ existing accounts to new, improperly opened accounts; issued credit cards; enrolled consumers in online-banking services; and opened lines of credit on consumers’ accounts.”

Culture of incentivizing illegal practices

In its May 2020 complaint against Fifth Third, the CFPB noted Fifth Third’s culture of incentivizing the illegal practices described above through compensation programs that rewarded employees for selling products and services to existing customers.

The CFPB warned that these sales strategies, while innocuous on their face, were not judiciously implemented and had the potential to induce employees to engage in misconduct. Further, Fifth Third failed to monitor or mitigate misconduct when it arose, or to rectify the harm done to consumers. To combat this, the CFPB said the bank should consider a new set of compensation metrics and prohibit sales goals that incentivize employees to open fake accounts.

This is not the first time that Fifth Third has run afoul of the CFPB’s investigations targeting illegal practices. The CFPB brought an action against the bank in 2015 for racially discriminatory auto loan pricing and for illegal credit card practices and ordered it to pay $18m and $3m in penalties, respectively.