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Fifth Third Bank Faces Auto Lending Probe

640px-Cincinnati-fifth-third-bankFifth Third Bank is under investigation by the U.S. Department of Justice for its auto lending practices.

In its quarterly report filed with the Securities and Exchange Commission, Fifth Third disclosed that the investigation will determine whether it is engaged in any discriminatory practices in its indirect auto loan portfolio. It also said it is cooperating with the investigation.

The Ohio-based bank is the newest to join the list of auto lenders being investigated for their lending practices. Toyota Motor Credit Corp. and American Honda Finance Corp. have also disclosed last year that they are being investigated by the Justice Department and the Consumer Financial Protection Bureau.

Ally Financial Inc. was on the headlines last year also when it announced that it reached a consent agreement with the CFPB and the Justice Department and paid a total of $98 million dollars for penalties and consumer restitution to minority borrowers. But Ally denied that it tolerated discriminatory auto lending practices.

The CFPB has been suggesting a flat-fee system or any compensation method where dealerships would no longer have the discretion over how much they will get from arranging auto loans for their customers.

The current compensation method called dealer reserve allows dealerships to add two to three percentage points to the base interest rate of the lender’s loan. The discretion of dealerships over how much to add is an opportunity for them to charge minorities more.

Fifth Third Bank had an average of $12 billion in outstanding auto loans in the first quarter of 2014, a one-percent increase from the same period in the previous year. Experian Automotive data shows that the bank ranks 12 in the list of U.S. auto lenders by market share for new and used vehicles as of last quarter of 2013.

Photo credit: Derek Jensen (Tysto) / Wikimedia Commons / CC BY 2.0

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