Fifth Third (FITB) Faces Lawsuit Over Fake Account Opening
Zacks Investment Research | Mar 10, 2020 07:57AM ET
Fifth Third Bancorp (NASDAQ:FITB) has been accused of opening fake accounts for customers to meet aggressive sales targets. A lawsuit has been filed against the company by the Consumer Financial Protection Bureau (“CFPB”) for its wrongdoing.
Per the lawsuit, Fifth Third Bank opened unauthorized client deposit and credit-card accounts from 2008 till 2016. Notably, the suit claims that the bank knew that its employees were engaged in such wrongdoing.
The bank has also been accused of transferring money from a customer’s existing account to its new one, without their consent, which is a violation of the Truth in Savings Act.
The CFPB stated, “Despite knowing since at least 2008 that employees were opening unauthorized consumer-financial accounts, Fifth Third took insufficient steps to detect and stop the conduct and to identify and remediate harmed consumers.”
It added that the program “created incentives for employees to engage in misconduct in order to meet goals or earn additional compensation.”
However, Fifth Third considers the lawsuit to be unnecessary. The bank said in a statement that it already conducted an investigation into the allegations. It found out that 1,100 accounts out of 10 million existing accounts were opened fraudulently and the amount of financial damage caused by these employees was less than $30,000.
Susan Zaunbrecher, the bank’s chief legal officer, stated, “Our controls are designed to prevent and detect unauthorized account openings. When a federal court examines the evidence, we believe it will agree with Fifth Third that this is a limited and historical event.”
Notably, Wells Fargo & Company (NYSE:WFC) has also been subjected to several investigations since September 2016, when the news of the bank allegedly opening millions of unauthorized accounts illegally to meet aggressive internal sales goals broke out.
Recently, Wells Fargo entered into a deal with the U.S. Department of Justice and the Securities and Exchange Commission, and agreed to pay $3 billion to settle the scandal that proved to be a major setback for the company since its breakout.
Our Take
Fifth Third continues to encounter investigations and lawsuits from investors and regulators from time to time. Its involvement in legal issues is expected to keep non-interest expenses elevated, thus hurting the bottom line to some extent.
Shares of Fifth Third have lost 34.1% over the past six months compared with a 14.3% decline of the Zacks Investment Research
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