Investing.com -- The U.S. Department of Justice and the Consumer Financial Protection Bureau announced on Monday that it reached an $18 million settlement with Fifth Third Bank to resolve charges that it engaged in a pattern of discrimination against African-Americans and Hispanic borrowers in its indirect auto lending business.
The settlement includes compensation for borrowers who were overcharged, according to the Justice Department, and forces Fifth Third Bank to alter some of its pricing for automobile loans. As part of the agreement, Fifth Third will limit dealer markups to 125 basis points or 1.25% for loans of 60 months or less. For loans greater than 60 months, the bank will limit markups to 100 basis points of 1.00%.
“We commend Fifth Third for its commitment to treating all of its customers fairly without regard to race or national origin and its leadership in agreeing to impose lower caps on discretionary markups,” Principal Deputy Assistant Attorney General Vanita Gupta, head of the Justice Department's Civil Rights Division, said in a statement. “This agreement shows that the indirect auto lending industry is moving toward a model of dealer compensation that fairly compensates dealers for their work related to loans, while limiting the dealer markup that leads to discriminatory pricing.”
The agreement resolves claims that Fifth Third discriminated against African American and Hispanic borrowers by charging them higher rates because of their race or skin color, opposed to their creditworthiness. Over an extended period, the average African American and Hispanic paid at least $200 more than the average auto loan borrower, the Justice Department said in a statement. The Equal Credit Opportunity Act (ECOA) prohibits such discrimination in all forms of lending, including auto lending.
“We are committed to promoting fair and equal access to credit in the auto finance marketplace,” CFPB Director Richard Cordray said in a statement. “Fifth Third’s move to a new pricing and compensation system represents a significant step toward protecting consumers from discrimination."
Shares in Fifth Third Bank fell by 0.53 or 2.77% to 18.60 on Monday.