CINCINNATI — The lawyers came out swinging Tuesday in a federal trial that will determine whether Fifth Third Bank overcharged customers in its “Early Access” loan program between 2008 and 2013.
The trial is the climax of a 10-year-old class-action lawsuit that could cost Fifth Third $440 million. Plaintiffs claim the bank breached contracts with more than 400,000 cash-advance customers by charging interest rates higher than the 120% annual percentage rate included in their short-term loan agreements. The bank claims its contracts clearly described the APR as an estimate, while defining the actual cost of the loan as a flat fee of a dollar for every $10 borrowed.
“Fifth Third’s practice of overcharging its customers continued for over a decade,” said Stuart Scott, a Cleveland attorney who represents Fifth Third customers. “So, this is a big case. And it’s an important case. But it’s also a very simple case. Because if a bank writes a contract for a 120 APR loan, then it can’t charge more than 120 APR.”
Annual percentage rates are required loan disclosures meant to tell consumers how much their loans cost on an annual basis. Fifth Third’s disclosure was based on an assumption that its 10% fee would cover a one-month loan. But Early Access loans were often paid back in days. So, the the bank’s average effective interest rate on millions of loans was 332%, Scott told jurors.
An attorney representing the bank told jurors it would be “nonsensical” to believe that Fifth Third customers were confused by Early Access loan terms because 95% of its borrowers used the program at least 11 times.
“The evidence at trial is going to establish that these customers got the benefit of their bargain,” said Enu Mainigi, a Washington, D.C. based partner in the Williams & Connolly law firm. “None of them complained about what they were charged before their lawyers got involved. Now, they’re trying to go back on the deal they agreed to.”
Mainigi said the APR estimate was “a regulatory disclosure that was never intended to be a payment term in the contract.” The flat fee, by contrast, was mentioned ten times in contract documents and on every ATM or computer screen that customers used to access the funds.
“The average customer used Early Access more than 50 times,” Mainigi told jurors. “Each of those 50-plus times they took an advance, they had to reaffirm that they understood the transaction fee. The cost was $1 for every $10 that they took out.”
Because those fees were clearly stated, U.S. District Judge Michael Barrett initially dismissed the breach of contract claim. But he was reversed by the Sixth Circuit Court of Appeals, which ruled the bank’s contracts included two contradictory explanations for the annual percentage rate that applied to its loans.
Judge Barrett certified the case as a class action in 2021. Now, he's overseeing a trial that makes the jury a finder of facts based on law he will define for it with input from attorneys on both sides of the case. The jury will hear from the Fifth Third executives who developed the Early Access loan program and experts who will explain how annual percentage rates are used in loan agreements and why plaintiffs think they’re entitled to a $440 million judgment.
Mainigi said jurors will hear from Mark Erhardt, a retired Fifth Third executive who saw Early Access as a way for customers to avoid predatory lending practices that were trapping some of its customers in overpriced debt.
“There were no enrollment fees, no application fees, no late fees, no interest fees, no hidden fees, Mainigi said. “It was just a dollar for every $10 borrowed.”
Scott said jurors will hear from Fifth Third customers who didn’t understand how Fifth Third’s APR estimates impacted their cost of borrowing.
“There is zero evidence that the plaintiffs made a conscious knowing decision to ignore the APR,” Scott said. “What we believe the evidence will show is that Fifth Third concealed the higher APR from the customers.”
The case is similar to many other lending disputes that Professor Nathalie Martin has studied while teaching consumer law at the University of New Mexico, with one twist.
“I’m surprised that the parties didn’t settle,” Martin said. “The law requires the lender to state the APR accurately. So, I don’t find it to be relevant what the parties understood. What’s relevant is what’s actually in the contract. And if there’s a conflict between the APR that was stated and what was told to the consumer, then the consumer is entitled to the more beneficial interpretation of the contract.”
If Fifth Third ever tried to settle the case, it wasn’t apparent during opening statements.
“Fifth Third doesn’t enjoy being here. It would much rather be serving its customers,” Mainigi said. “But Fifth Third is being sued and they’re here to defend what they think is right.”
