An $18 million settlement has been reached over allegations a bank discriminated against Latino and black borrowers.

According to the U.S. Department of Justice (DOJ), it was alleged that the Fifth Third Bank engaged in "a pattern or practice" of discriminating Latino and black borrowers in its indirect auto lending business.

The $18 million settlement still is subject to court approval, but it will include compensation for borrowers who were overcharged. With the settlement, Fifth Third Bank must change its method of pricing car loans. In addition, Fifth Third will limit its loan prices by "limiting dealer markup to 125 basis points, or 1.25 percent, for loans of 60 months or less, and to 100 basis points, or one percent, for loans greater than 60 months."

The DOJ revealed Fifth Third's lending practice was "subjective and unguided" and affected Latinos and black borrowers, who as a result had to pay more than qualified non-Hispanic white borrowers. An average black and Latino borrower had to pay more than $200 during the term of a loan.

"We commend Fifth Third for its commitment to treating all of its customers fairly without regard to race or national origin and its leadership in agreeing to impose lower caps on discretionary markups," said Principal Deputy Assistant Attorney General Vanita Gupta, head of the DOJ Civil Rights Division. "This agreement shows that the indirect auto lending industry is moving toward a model of dealer compensation that fairly compensates dealers for their work related to loans, while limiting the dealer markup that leads to discriminatory pricing."

A DOJ statement explained the "indirect" loans were, stating, "rather than taking applications directly from consumers, the bank makes most of its auto loans through car dealers nationwide who help their customers pay for their new or used car by submitting their loan application to Fifth Third." The car dealers were able to mark up a loan's interest rate. Specifically, the car dealers increased the interest rate based from the initial Fifth Third lending prices.

"Dealers received greater payments from Fifth Third for loans that included a higher interest rate markup," the DOJ added.

With the Equal Credit Opportunity Act (ECOA), all forms of loan discrimination are prohibited. The DOJ and Consumer Financial Protection Bureau (CFPB) will eventually announce how the compensation process will occur. An administrator will contact borrowers who may be eligible for compensation.

"We are committed to promoting fair and equal access to credit in the auto finance marketplace," CFPB Director Richard Cordray said in a statement. "Fifth Third's move to a new pricing and compensation system represents a significant step toward protecting consumers from discrimination."

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