Fitch: Ally Sped CFPB Settlement to Smooth Road for IPO

Rating agency Fitch believes that Ally Financial accelerated its fair lending settlement with the Consumer Financial Protection Bureau last month to allay investor concerns ahead of a potential IPO.

Fitch’s claim was part of a broader report, released today, that predicts that the cost of compliance in the climate of heightened government scrutiny of potentially discriminatory auto lending practices will raise lender regulatory costs in 2014.

Fitch pointed out that Ally’s consent order entailed a record $98 million settlement ― an $18 million civil penalty and an $80 million contribution to a settlement fund. The order also required Ally to implement a compliance program to monitor dealer markups in order to prevent future discrimination or eliminate dealer markups altogether.

Though Ally was the first lender to settle CFPB fair lending claims, Fitch contends that the agency is currently in discussions with various banks, captives, and independent finance companies regarding their lending practices. That government scrutiny could ultimately lead to changes in established business practices, including an elimination of the dealer markups altogether in favor of flat fees.

Fitch expects regulatory scrutiny from the CFPB to remain elevated for the foreseeable future. Moreover, increased regulatory costs and compliance requirements are expected to continue to weigh on operational flexibility and the financial performance of auto lenders in 2014.