CFPB: Failure to Remediate Non-Compliance May Be Abusive Conduct

In a matter that highlights the importance of comprehensive consumer remediation and exemplifies the Bureau's renewed aggressive enforcement approach, on August 13, 2021, the Consumer Financial Protection Bureau moved for judgment on the pleadings in its sales practices case against Fifth Third Bank.

Specifically, the Bureau seeks judgment on its claim that Fifth Third's alleged failure to timely identify and remediate consumer harm was itself abusive conduct. Below, we briefly review the history of the matter and identify lessons for financial institutions when remediating non-compliance.

The Bureau's March 2020 Complaint

The Bureau sued Fifth Third Bank in March 2020. In its 17-page complaint, the Bureau alleged that Fifth Third's cross-selling practices, which included sales goals and an incentive-compensation program that the Bureau alleged were not carefully and properly implemented and monitored, caused Fifth Third's employees to open new consumer accounts for existing customers without their knowledge or consent. The Bureau alleged that such conduct in certain respects was unfair and abusive, in violation of the Consumer Financial Protection Act, and that issuing unauthorized credit cards and opening deposit accounts without required disclosures violated Regulation Z and Regulation DD, respectively.

The Bureau's March 2020 unfairness and abusiveness claims were similar to the claims it asserted in other sales practices matters. Against Fifth Third, the Bureau further alleged that the bank's failure to change its sales practices to avoid consumer harm after it learned of the unauthorized accounts was also an unfair practice.

Fifth Third's Identification and Remediation of Affected Accounts

Contemporaneously with the Bureau's March 2020 filing, Fifth Third announced it had remediated 1,100 unauthorized accounts. According to the amended complaint, Fifth Third then retained a "globally recognized consulting firm" to examine additional "suspicious" accounts that were opened from 2010 to 2016, identified "red flag" accounts, and analyzed them to determine whether they were improperly opened. Based on this review, Fifth Third identified and remediated an additional 800 consumers.

June 2021 Amended Complaint Adds Abusiveness Claim for Failure to Sufficiently and Timely Identify and Remediate Consumers

Following a transfer of venue, the Bureau filed an amended complaint against Fifth Third on June 16, 2021. This time, the Bureau was less restrained.

The 43-page complaint's opening paragraphs aim directly at (1) Fifth Third's alleged knowledge "for more than a decade" that its acts and practices led to the opening of consumer-financial products that were not in consumers' interests; and (2) Fifth Third's failure to timely and sufficiently identify and remediate affected consumers. The complaint adds detail to the March 2020 complaint's allegations about opening unauthorized accounts, including specifying the number of accounts at issue. It asserts eight counts of abusive conduct and adds a claim under the Fair Credit Reporting Act for unauthorized use of consumer reports.

It is the Bureau's 12th count in the June 2021 complaint that is particularly notable and the subject of its recent motion for judgment on the pleadings: the Bureau asserts a distinct abusiveness claim for Fifth Third's alleged failure to timely identify and remediate consumers.

In support of this claim, the Bureau alleged:

• "Fifth Third is aware of reasonable methods available to it to identify additional consumers that it subjected to unauthorized financial products or services or applications therefor";
• "Fifth Third declined, and still declines, to make reasonable efforts to identify additional consumers that it subjected to unauthorized financial products or services or applications therefor";
• "Fifth Third declined to make these reasonable efforts because it believes that identification of additional affected consumers would cause it reputational and other harm";
• "Some consumers who Fifth Third victimized with unauthorized products or services had those products or services open for months or years without their knowledge";
• "Compounding the harm to consumers, Fifth Third made statements to consumers that could cause reasonable consumers to believe that Fifth Third acts in their interests and has identified and remediated all consumers that it subjected to unauthorized financial products or services";
• "These acts or practices take unreasonable advantage of a lack of understanding on the part of consumers of the material risks, costs, or conditions of Fifth Third's products or services";
• "These acts or practices take unreasonable advantage of the inability of consumers to protect the interests of consumers in selecting or using consumer-financial products or services because the consumers are unaware of those products or services"; and
• "These acts or practices take unreasonable advantage of the reasonable reliance by consumers on Fifth Third to act in the interest of consumers."

Motion for Judgment on the Abusiveness Claim for Failure to Sufficiently Remediate

In its August 17 motion, the Bureau focusses on Fifth Third's alleged failure to "timely identify and remediate … 800 consumers, despite possessing the information to do so," until after the Bureau filed its March 2020 complaint. Even though the Bureau acknowledges that Fifth Third did eventually remediate these consumers, as well as the 1,100 consumers Fifth Third had originally announced it had remediated, the Bureau alleges that the remediation came too late, and the alleged untimeliness and insufficiency of the identification and remediation were abusive.

Lessons for Financial Institutions When Remediating Potential Consumer Harm

The Bureau's motion does not state what extent of remediation would have been acceptable, but the June 2021 complaint offers some clues. The Bureau alleges:

• Although Fifth Third acknowledged that minimum funding, fake email addresses, statement suppression, and new-account funding from an existing account could each indicate a potentially unauthorized deposit account, it failed to use any of these indicia to identify unauthorized accounts;
• Although Fifth Third acknowledged that the absence of a credit-card application in an account file could indicate an authorized card, it did not investigate all issued credit cards for which it has no application on file;
• Fifth Third did not scrutinize online banking enrollments that used a Fifth Third email address and had few or no login attempts;
• Fifth Third did not scrutinize accounts that lacked a consumer signature or were opened and closed on the same day without being used; and
• Fifth Third did not use any system or technology to detect unauthorized accounts, but instead "relied on consumers to self-identify as victims or employees to allege improper activity."

The district court will determine whether untimely remediation meets the abusiveness standard. In the meantime, the Bureau has declared its expectations for remediation of non-compliance with consumer financial laws: financial institutions must conduct a comprehensive review, investigate indicia of wrongful conduct, determine whether related wrongful conduct has occurred, and utilize systemic and technological means—rather than solely relying on manual processes—to promptly identify consumers who may be eligible for remediation.

Davis Wright Tremaine routinely counsels financial institutions in conducting remediations in a manner that is fair to consumers, complete, and efficient. Getting remediation right the first time is an important way to treat customers fairly and avoid regulatory criticism.