The Consumer Financial Protection Bureau and the Department of Justice have ordered Ally Financial Inc. and Ally Bank to pay an $80 million in damages and $18 million in penalties for alleged violations of fair lending law. Ally Financial expects to take a $98 million charge this quarter related to the settlement.
The government agencies allege that 235,000 African American, Hispanic, and Asian borrowers paid higher interest rates for auto loans between April 2011 and December 2013 because of what they are calling Ally’s discriminatory pricing system. Today’s order is the largest auto loan discrimination settlement in history.
Ally said in a statement that terms of the settlement include enhancing dealer monitoring and reducing the perceived disparity for the protected classes outlined in the order.
Ally noted that it does not make loans directly to consumers, but rather, purchases installment contracts originated by auto dealers. Further, its long-time process for evaluating auto installment contracts from dealers excludes information on consumers’ race or ethnicity. Rather, Ally assesses contracts and sets pricing based solely on consumer creditworthiness and contract characteristics.
Ally said it does not engage in or condone violations of law or discriminatory practices, and based on the company’s analysis of its business, it does not believe that there is measurable discrimination by auto dealers.
Yet the CFPB and DOJ assert that pricing disparity has occurred for certain protected classes of consumers as a result of auto dealers’ ability to mark-up the rate at which Ally buys retail installment contracts.
“By requiring Ally to provide refunds to those who are overcharged because of their race or national origin, this agreement will ensure relief for Americans who are victimized,” said Attorney General Eric Holder in the CFPB statement. “It will enable the Justice Department and the CFPB to work closely with Ally and others to prevent discriminatory practices in the future. And it will reinforce our determination to respond aggressively to discrimination in America’s lending markets – wherever it is found.”
