Ally to pay $98M in compensation, penalties

The CFPB announced on Friday that it has agreed to a $98 million settlement with Ally Financial, Inc. – $80 million of which will compensate consumers – in response to a charge that Ally discriminated against 235,000 minority consumers.

The case is the first enforcement action by the CFPB involving an indirect auto lending violation.

The settlement also includes $18 million in penalties. Ally did not publicly deny or admit to the charges, but said it would enhance its monitoring of auto dealers. The borrowers in question were seeking loans through auto dealers under Ally’s indirect auto lending program. The CFPB, as well as the Justice Department, alleged that Ally was allowing auto dealers to increase interest rates in a way that disproportionately and negatively affected minority borrowers.

CFPB Director Richard Cordray said both Ally and the dealers had financial incentives for interest rates to be marked up: “We concluded that these incentives have unjustly hurt minority borrowers.  We also determined that Ally had not made sufficient efforts to ensure that it was complying with fair lending laws in its pricing of indirect auto loans.  As a result, we believe that African-American, Asian and Pacific Islander, and Hispanic borrowers paid more for auto loans than did their non-Hispanic white counterparts with similar credit profiles.  Allowing these practices to continue would undermine all lenders that are making conscious efforts to follow the law.”

After the CFPB issued a bulletin in March on indirect lending and disparate impact, NAFCU reiterated its position that it strongly supports fair lending. NAFCU aired concerns, however, about the bureau’s approach, noting the guidance appeared to put credit unions between auto dealers and the CFPB, which has no direct supervisory authority over auto dealers under the Dodd-Frank Act. Legislators have also questioned the bureau’s authority and methodology in determining disparate impact. The CFPB responded to questions from 22 senators in November, saying the bulletin was a reminder about lenders’ mandated responsibilities under the Equal Credit Opportunity Act, and not a new rule.

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