Regional Bank to Pay $20 Million Over Fake Accounts, Insurance Coverage Allegations

The Fifth Third Bank building in Cincinnati, Ohio, in an undated file photo. Al Behrman/AP Photo

Fifth Third Bank, a consumer bank in the Midwest, has agreed to pay $20 million to settle allegations that it created fake accounts in customers’ names and imposed unnecessary car insurance on customers, leading to vehicle repossessions in some cases, the Consumer Financial Protection Bureau (CFPB) announced in a July 9.

The CFPB said in a press release that it had taken action against “repeat offender Fifth Third Bank for a range of illegal activities” resulting in $20 million in penalties.“ In addition, the bank must also pay ”redress to approximately 35,000 harmed consumers, including about 1,000 who had their cars repossessed.”

The $20 million penalty was issued for two separate charges: one related to the bank’s auto finance servicing activities and the other concerning its sales practices.

‘Force-Placed Insurance’

The auto finance activities charge against Fifth Third relates to vehicle loans taken by customers. When a person obtained an auto loan from Fifth Third, the bank required them to maintain auto insurance to cover physical damage to the vehicle.

If the borrower did not maintain this insurance, the bank could charge for it, also known as “force-placed insurance.”

CFPB found that more than 50 percent of these force-placed policies were imposed on borrowers who either already maintained their insurance or obtained the insurance within 30 days of an existing policy lapsing.

“The Bureau found that Fifth Third’s placing duplicative and unnecessary force-placed insurance on motor vehicle loans; charging premiums for force-placed-insurance policies that had terminated; and failing to provide sufficient notice to consumers of increased monthly payments due to force-placed insurance was unfair in violation of the Consumer Financial Protection Act of 2010,” the agency said.

“Fifth Third continued to force place insurance for years, demanding that consumers pay for insurance they did not need or else face delinquency, additional fees, and even repossession.”

Between 2011 and 2019, the bank placed such duplicative insurance more than 37,000 times, CFPB wrote. The borrowers ended up paying $12.7 million in “illegal, worthless” fees due to these actions.

CFPB also found that Fifth Third repossessed vehicles even when borrowers failed to make payments due to the bank’s “unnecessary and duplicative coverage.”

The CFPB ordered the bank to pay $5 million in penalties for forcing vehicle insurance onto borrowers who already carried coverage. The bank must also compensate roughly 35,000 customers harmed by these activities.

‘Fake Accounts’

The sales practices charge alleged that for several years, at least until 2016, Fifth Third opened deposit and credit card accounts in customers’ names without obtaining their consent.

The bank “transferred funds from consumers’ existing accounts to new, improperly opened accounts; enrolled consumers in unauthorized online-banking services; and activated unauthorized lines of credit on consumers’ accounts,” the agency states.

The CFPB accused the bank of violating the Consumer Financial Protection Act’s ban on unfair and abusive practices as well as the Truth in Lending Act and the Truth in Savings Act.

The bank required employees to meet certain sales targets. “Despite knowing since at least 2008 that employees were opening unauthorized consumer-financial accounts, Fifth Third took insufficient steps to detect and stop the conduct and to identify and remediate harmed consumers,” the bureau said.

The bank was ordered to pay a penalty of $15 million for opening fake accounts in customers’ names. The order also instructs the bank to stop setting sales targets for employees in a way that incentivizes opening accounts using fraudulent means.

“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,” Mr. Chopra said.

The penalties will be deposited into the CFPB’s victims relief fund.

Fifth Third Bank stated that the sales practice issues were related to a limited number of accounts opened between 2010 and 2016, according to a July 9 press release.

Susan Zaunbrecher, chief legal officer of Fifth Third, noted that the dispute regarding auto financing activities was related to an insurance program that the bank shut down in 2019 before the CFPB began its investigation. She added that the settlement resolved these two disputes.

“We have already taken significant action to address these legacy matters, including identifying issues and taking the initiative to set things right,” she stated.