July 20, 2024

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Fifth Third Bank to Pay $5 Million to Settle Auto Insurance Allegations

Fifth Third Bank has agreed to pay millions of dollars to settle allegations that it forced auto loans. This leads to customers being forced into duplicate auto insurance policies which makes their monthly payments more expensive, in some cases resulting in vehicles being repossessed from customers who cannot afford the payments.

The Consumer Financial Protection Bureau said Tuesday that Court documents The Ohio-based bank improperly applied for about 37,000 insurance policies between 2011 and 2019. The agency ordered the bank to pay a $5 million fine and provide unspecified compensation to affected customers.

Consumer Financial Protection Bureau Director Rohit Chopra said the bank was “illegally burdening auto loan bills with excessive fees,” causing about 1,000 families to lose their cars to foreclosure.

“We are ordering the senior executives and board of directors at Fifth Third Bank to clean up these broken business practices or face further consequences,” Chopra said.

The bank said the auto insurance practices identified by the Consumer Financial Protection Bureau were voluntarily terminated in 2019, before the agency began its investigation.

“We have already taken significant steps to address these legacy issues, including identifying the issues and taking the initiative to correct them,” Susan Sonnbrecher, Fifth Third Bank’s chief legal officer, said in a statement.

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This is the latest action taken by the Consumer Financial Protection Bureau against the bank, which was accused in 2020 of improperly opening accounts from at least 2010 through 2018. Fifth Third agreed Tuesday to pay $15 million to address the allegations.

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The insurance claims are a separate issue, stemming from a division of the bank that works with auto dealers to provide auto loans.

For years, Fifth Third auto loans have included “collateral protection insurance.” The Consumer Financial Protection Act states that mandatory insurance is “mandatory insurance,” meaning it allows coverage to be added automatically to customers who do not have their own coverage—a practice the Consumer Financial Protection Bureau has described as “forced insurance.”

The clause was intended to give the bank a way to protect the collateral the loan provided: the car itself. But more than half of the insurance policies the bank imposed on customers applied to customers who were already insured or had obtained new insurance within 30 days of a previous policy expiring, according to the Consumer Financial Protection Bureau.

The agency alleged that “Fifth Third has been charging insurance for years, demanding that consumers pay for insurance they don't need or face late payments, additional fees, and even repossession.”

The Consumer Financial Protection Agency said the premiums charged by the policies were higher than what car owners could get elsewhere, adding an average of about $200 to a borrower's monthly car payment.

The Consumer Financial Protection Bureau said the charges were illegal and led to some customers defaulting on their loans, with 1,005 customers’ vehicles impounded. The forced insurance program ended in 2019, according to the CFPB and the bank.