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CFPB lawsuit alleges Fifth Third opened unauthorized credit card accounts

Consumers were levied unjustified fees and could suffer the consequences of negative input in their credit reports

Summary

The CFPB’s lawsuit says the bank encouraged its employees to drive up sales using compensation incentives and they opened unauthorized accounts.

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The Consumer Financial Protection Bureau has filed a lawsuit against Fifth Third Bank, alleging that it opened unauthorized credit card accounts, among other things.

The consumer protection agency says the Cincinnati-based bank’s practices are “unfair or abusive,” and also go against the Truth in Lending Act and the Truth in Savings Act.

Responding to the CFPB allegations, Fifth Third said in a media release, “The allegations in the civil lawsuit brought by the CFPB against Fifth Third are unsubstantiated, based on limited, non-systemic and remediated events, and reflect misunderstandings of our products, services, and work culture.”

See related: Consumer groups say CFPB rules for abusive practices will limit enforcement

Hard-sell tactics

The bank engaged in cross-selling its products, a strategy of selling its other products or services to customers who had signed up for different products or services, according to the CFPB. This practice went on for years, from at least 2010 through 2016. Even though the bank knew its employees were opening unauthorized financial accounts, it continued to turn a blind eye.

Fifth Third employees were provided an incentive for new sales, the CFPB says. The bank based employee performance ratings on their meeting sales targets, and at times even made this a condition of their continued employment with Fifth Third.

According to the CFPB, “Reasonable sales goals and performance incentives are not inherently harmful. But when such programs are not carefully and properly implemented and monitored, they may create incentives for employees to engage in misconduct in order to meet goals or earn additional compensation.”

According to Fifth Third, just 0.01% of the accounts opened between 2010 and 2016 were unauthorized. This means “there is no evidence of systemic misconduct.”

See related: Supreme Court to hear case that threatens CFPB independence

Unauthorized credit card accounts

The bank put in big sales goals for its employees to sell credit cards, and also provided incentives to them for these sales. During the period of 2008 through at least 2016, CFPB finds the bank issued cards that customers did not authorize. By 2009 or earlier, the bank was aware of “a spike in unauthorized credit cards” issued to customers. Even then, the bank did not address the issue.

As a result of this practice, consumers were likely to incur “unjustified fees” for the cards, and also see a negative impact on their information sent to credit reporting agencies.

Consumers are not able to avoid fees for cards they do not know have been issued. There was no benefit to consumers as a result of this practice that outweighed these negative effects.

In its response, Fifth Third said just because credit cards were not used, it doesn’t mean they were not authorized. Also, the bank says it does not charge fees on most of its credit cards.

See related: How to dispute and fix credit report errors

Remedies for customers

The CFPB asks that Fifth Third be ordered to stop opening unauthorized accounts. It should also identify affected customers and allow them to close the involved accounts without any fees or penalties. Additionally, the agency wants the bank to correct any harmful information it has provided to credit reporting bureaus.

The consumer protection agency would like Fifth Third to pay “damages, restitution and other monetary relief” to consumers, and pay “disgorgement or compensation for unjust enrichment.” It is also asking the court to levy a monetary penalty on the bank and make it bear the costs of bringing the case against it.

Other banks have also been implicated for opening unauthorized accounts. Wells Fargo has been penalized by the government for such practices. More recently, American Express has been in the news for dubious sales tactics in signing up small-business owners to its Amex cards.

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