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Fifth Third Early Access Loan Case Revived by Federal Court

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A proposed class action against Fifth Third Bancorp (FITB - Free Report) has been revived by a federal appeals court. The lawsuit charged the bank of misguiding consumers by using annual percentage rates (APR) in a cash advance loan product, far more than actually promised.

In 2015, the case was dismissed by U.S. District Judge Michael Barrett on grounds that the bank did not breach contract by unambiguously disclosing the way it calculates rates on the loans.

However, the Sixth Circuit Court of Appeals has asked the lower court to reexamine its decision. Also, it is of the opinion that the language used was ambiguous as it provided two different descriptions of APR, which are found to be inconsistent with each other.


In 2012, the lawsuit was filed against Fifth Third for misleading customers about the true cost of the loans it issued under "Early Access" cash advance loans program. The program offers short-term lending option to clients who hold eligible checking accounts.

Fifth Third deposited such loans to borrowers’ accounts and then paid itself back automatically, along with a 10% transaction fee, after a direct deposit posted or 35 days elapsed, whichever came first. The contract stated APR as 120% in all cases.

However, clients accused that the stated APR was “false and misleading” as regardless of the length of the loan, the figure always remained same upon calculation made using the method stated in contract.

On calculating APR in a more conventional method, by considering the length of the loan, plaintiffs assert that the APR was in fact as high as 3650%.

Our Take

Fifth Third’s involvement in litigation issues and ongoing strategic investments keep costs elevated. Also, significant exposure to commercial loans is a concern.

However, the company’s efforts to expand geographically and bolster operations bode well for long-term growth. Further, its North Star initiatives are expected to result in revenue growth, expense savings and drive efficiency.

The stock has gained around 15.7% year to date compared with 9.5% growth recorded by the industry.

Currently, Fifth Third carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stocks to Consider

Some better-ranked stocks in the same space worth considering are BankUnited (BKU - Free Report) , Northern Trust Corporation (NTRS - Free Report) and UMB Financial Corporation (UMBF - Free Report) . All these stocks carry a Zacks Rank #2 (Buy).

BankUnited’s Zacks Consensus Estimate for current-year earnings has been revised nearly 1% upward in the past 30 days. Also, its share price has increased 13.3% so far this year.

Northern Trust’s current-year earnings estimates have been revised slightly upward over the past 30 days. Further, the company’s shares have jumped 9.3% so far this year.

UMB Financial’s Zacks Consensus Estimate for current-year earnings has been revised 1.5% upward over the past 30 days. Moreover, year to date, its shares have gained 6.7%.

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