Fifth Third Bank fined for unethical lending practices

When this story first landed on my desk, I had to admit that I did a double-take. Was this an item from 1955 or from 2015? No, I was not wrong.

In an article for Bankrate.com, writer Tara Baukus Mello, let us into the world of Fifth Third Bank, an indirect auto loan lender. The bank works with car dealerships across the nation. According to the article “Auto lender fined for discrimination,” the writer reveals the following:

“The federal agencies found that Fifth Third allowed the auto dealers it works with to charge a higher markup rate to African-American and Hispanic buyers than to buyers of other ethnicities. Marking up car loan rates is common practice, as it generates additional profit for the dealer while giving them the discretion to charge consumers different rates on car loans based on their creditworthiness.”

Over the past five years, the bank allowed the dealers to markup loans as high as

2.5% without regard to their creditworthiness. The bank “must pay $18 million in damages to African-American and Hispanic borrowers who obtained loans between January 2010 and September 2015.”

Not just the bank       

Let us not just attack the bank in this case, we must remember that the car dealerships themselves had the discretion to markup the loans to customers when they came through the doors. In fact, the car dealerships were “the eyes” that made the racially-charged determinations. This should outrage all of us.

The automobile dealership industry has had a long history of unethical practices. In fact, it has almost become parody. We have an image of the infamous “used car dealer” selling broken down, beat up cars as little gems that were “driven by sweet old ladies to church on Sundays.” However, marking up car loans to someone because of skin color takes it to a whole new level.

The automobile industry, even those in the industry who proclaim themselves to be honest and ethical, have gone out of their way to make the pricing of their products byzantine in understanding for the average consumer. In addition, used care trade in values are so confusing, that a great many of us would love to sell our cars privately. The point is that the level of trust is virtually nonexistent.

I would dare say if I were to poll 100 consumers at random and ask them if they are surprised by these discriminatory loan mark-ups, I doubt that more than one or two people would express “shock” or “surprise.”

No ethical standards

While I could concede the high level of unethical behavior attributable to the car dealership industry, those in banking are (presumably) more aware of rules, regulations and good business practices. Dare I say, even more educated? Fifth Third bank is one of those “behind the scenes” lenders. They don’t make the bulk of their money on customers depositing money into retail accounts; they concern themselves with selling huge loan packages to dealerships at favorable rates. The 2.5 percent discretion they allowed the dealerships was an added inducement. Dealerships could make $200 or more by steering customers to the loan money Fifth Third bank made available.

While many legal lines were crossed here, not to mention EEOC legislation, the biggest lines that were crossed were ethical. This could have only taken place in an atmosphere devoid of ethical expectations – and devoid of ethical oversight. Clearly, this could have only happened because no system was put into place. The lack of ethics was shared by every individual at every level; from the junior car salesperson up to the president of the bank.

The only long-lasting solution is the application of strong ethical standards and education throughout the industry. As consumers, we must demand an ethical examination of lending practices in the industry. It seems preposterous in 2015; I thought we were long past this nonsense. Ethically, many in that industry are apparently not; it goes beyond shame. We must stop it now.

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