Yesterday, the federal Consumer Financial Protection Bureau (CFPB) announced that Fifth Third Bank will pay $21 million back to consumers as a part of two investigations into the institution’s practices. The bank will pay $18 million to African American and Latino consumers for engaging in auto dealer markups a discriminatory lending practice that resulted in borrowers of color paying more for their car loans. It will also pay $3 million in relief to borrowers affected by deceptive add-on product credit card marketing.

Chris Kukla, Senior Vice President and expert on auto lending issues at the Center for Responsible Lending, issued the following statement:

Even when African-American and Latino borrowers negotiate with dealers, they end up paying more for their cars than white borrowers with similar credit profiles. That is wrong, and our research shows that dealer mark-ups contribute to this discriminatory outcome. We hope the CFPB will continue to work to ensure that discrimination is not tolerated in our credit markets. The best way to root out discrimination in auto lending would be to eliminate dealer mark-ups altogether.

What Are Auto Dealer Markups?

This little-known, often-employed practice involves car dealers adding extra interest onto the loan a bank, credit union or finance company has agreed to buy from the dealer. Court cases and enforcement actions over two decades have shown dealer markups result in racial discrimination. Borrowers of color see their loans marked up more often and by a greater percentage.

How it works: A bank approves a 5% interest rate loan for a consumer, but the dealer adds 2%, offers the consumer a loan at 7% and pockets most of the difference. The consumer is never aware they were approved for a lower rate and gets stuck with higher payments for the life of their loan.

For more information, or to arrange an interview with a CRL spokesperson on this issue, please contact Andrew High at Andrew.High@responsiblelending.org or 919-313-8533.

Related Content