A major auto lender will pay nearly $100 million to settle charges by the Consumer Financial Protection Bureau and the U.S. Department of Justice that it unintentionally discriminated against minority borrowers, charging them more for loans than white applicants with comparable credit.
In the federal government's largest auto loan discrimination settlement to date, Ally Financial Inc. and Ally Bank will pay $80 million to consumers in restitution, as well as an additional $18 million civil penalty. According to the government, Ally overcharged more than 235,000 black, Hispanic and Asian/Pacific Islander consumers by an average of $200 to $300 for loans issued between April 2011 and December 2013.
But the lender - which was formerly known as GMAC Inc. and received a $17.2 billion bailout from the Treasury Department during the financial crisis - didn’t do it on purpose, the government admits.
“Whether or not Ally consciously intended to discriminate makes no practical difference,” said CFPB Director Richard Cordray in a conference call with reporters. “In fact, we do not allege that Ally did so. Yet the outcome, and the harm to consumers, is the very same here.” Jocelyn Samuels, acting assistant attorney general for the Civil Rights Division, added: “All qualified borrowers deserve equal access to fair and responsible lending.”
The complaint and proposed settlement, both filed today in U.S. District Court for the Eastern District of Michigan, stemmed from a CFPB examination that began in September 2012.
According to the government, Ally, which works 12,000 auto dealers to offer third-party vehicle financing, would set a minimum interest rate for the dealer to charge the customer. But Ally also allowed the dealer to jack up the rate, and the two entities would share the profits from the dealer markup.
The markups “are not connected to the consumer’s creditworthiness or other objective criteria related to borrower risk,” according to the complaint, which alleges Ally violated the Equal Credit Opportunity Act. “Ally has not provided adequate constraints or monitoring across its portfolio of loans to prevent discrimination from occurring.”
No dealers were named in the complaint—the CFPB does not have jurisdiction over them, although DOJ does. “This case focuses on the impact of Ally, not individual dealers,” said Eric Halperin, special counsel for fair lending in DOJ’s Civil Rights Division.
Ally did not admit or deny the allegations - common in government civil proceedings. But here, the company’s protestations went further, sounding at times more like a press release than a consent order.
“Ally has treated all of its customers fairly and without regard to race or national origin,” the proposed settlement states. “Ally enters this settlement for the purpose of avoiding contested litigation with the Department of Justice and to instead devote its resources to serving its customers.”
Ally also stated that “the alleged policy by Ally is common in the industry and has been for decades,” and that “Ally has not been informed that the United States contends that Ally or any of its employees engaged in any intentional discrimination or disparate treatment of minorities.”
An Ally spokeswoman declined to identify the company’s outside counsel. The complaint lists Ally Financial general counsel Robert Neaton and Ally Bank general counsel Hu Benton.