Pondering on Consumer Compliance Failures

Have they failed to learn from other offenders in the same industry? Or haven’t they learned from previous mistakes?

In light of recent actions by the Consumer Financial Protection Bureau (CFPB), one cannot help but question: Haven’t these financial entities learned from their past mistakes? Regulators have made their intentions clear regarding consumer compliance for several years. Yet, it appears that many institutions have not fully grasped the importance of oversight, risk management, and regulatory adherence.

Recently, the CFPB took action against Fifth Third Bank for a range of illegal activities. These actions will cost the bank $20 million in penalties and require restitution for approximately 35,000 harmed consumers, including around 1,000 who had their cars repossessed. This scenario echoes the infamous Wells Fargo scandal.

In 2016, Wells Fargo was fined by the CFPB for creating millions of unauthorized accounts without customer consent. This scandal, revealed by a Los Angeles Times article, exposed that employees opened these accounts between 2011 and 2015 to meet unrealistic sales goals. Wells Fargo paid $185 million in fines and penalties in 2016 and an additional $3 billion in 2020. Despite these severe repercussions, similar issues persist within other financial institutions.

CFPB's Recent Action Against Fifth Third Bank

The CFPB's recent enforcement against Fifth Third Bank highlights the continuation of egregious practices. The bank will pay $20 million in penalties, with $5 million specifically for forcing unnecessary vehicle insurance on borrowers. Additionally, a proposed court order mandates a $15 million penalty for opening unauthorized accounts, banning sales quotas that foster fraudulent account openings.

CFPB Director Rohit Chopra stated, “The CFPB has caught Fifth Third Bank illegally loading up auto loan bills with excessive charges, with almost 1,000 families losing their cars to repossession. We are ordering the senior executives and board of directors at Fifth Third to clean up these broken business practices or else face further consequences.”

Fifth Third Bancorp, with assets of $214 billion and operations across 12 states, is charged with harming borrowers by:

1. Charging unnecessary and duplicative coverage fees, resulting in over $12.7 million in worthless fees paid by consumers. Thoughts: Did the bank implement adequate controls to monitor and detect these issues? Data analysis and AI could have provided valuable assistance in this regard. What went wrong?

2. Punishing borrowers with repossessions due to these unnecessary charges. Thoughts: Can you fathom the ripple effects this negligence has had on the livelihoods of consumers?

The second part of the CFPB’s action resolves its 2020 lawsuit against Fifth Third for creating fake customer accounts through a "cross-sell" strategy, pushing for more products and services to existing customers.

Enforcement Actions and Their Impact

Under the Consumer Financial Protection Act, the CFPB can take action against institutions violating consumer financial protection laws, including unfair, deceptive, or abusive practices. The CFPB’s orders require Fifth Third Bank to:

1. Compensate harmed consumers.
2. Ban sales goals leading to unauthorized accounts.
3. Pay $20 million in fines, including $5 million for illegal activity and $15 million if the court approves the proposed order, with penalties going to the CFPB’s victims relief fund.

This action follows prior CFPB actions against Fifth Third Bank, including penalties for discriminatory auto loan pricing and illegal credit card practices, amounting to millions in compensation and fines.

Conclusion: The Need for Vigilance

The recurrence of these issues raises a critical question: What are companies like Vroom and Fifth Third Bank thinking when providing such inadequate products and services? Their operations, compliance, and business processes appear disastrous. Are the Board of Directors and executive teams blind to these failures, or do they simply not care about the severe impact on consumers?

The financial industry must prioritize ethical practices, robust compliance, and consumer protection. Regulators like the CFPB play a vital role in holding these entities accountable, but the institutions themselves must commit to change. Only through genuine reform and vigilance can we hope to prevent future misconduct and restore consumer trust.

The FTC and CFPB's actions highlight the importance of compliance and the consequences of neglecting consumer rights. It is imperative that financial institutions learn from past mistakes and strive for transparency, accountability, and integrity in all their operations.

Parting Thoughts: One important consideration to always reflect upon is - While your products and services may scale, are they sustainable at that capacity? This is a crucial aspect to consistently evaluate as a CEO and or as a Board of Director.