Prepared remarks by Richard Cordray director of the Consumer Financial Protection Bureau
WASHINGTON, DC (December 20, 2013) — Thank you all for joining us. Today we are announcing that the Consumer Bureau is taking its first enforcement action against discriminatory auto lending. In partnership with the Department of Justice, we are ordering one of the largest indirect auto lenders in the country, Ally, to pay $98 million to address their auto loan pricing structure, which we believe has caused discrimination against more than 235,000 minority consumers. Ally will pay $80 million in restitution to consumers and $18 million in civil penalties to resolve these issues. Our actions today mark the federal government’s largest auto loan discrimination settlement in history.
Auto loans are the third-largest source of outstanding household debt in the United States, after mortgages and student loans. Cars and trucks, quite literally, can take consumers where they want to go: to new opportunities or perhaps to save time spent commuting. For those who live in rural or suburban areas, a vehicle is almost a basic necessity to get around. Every year, millions of American families buy cars and trucks for all these reasons and more, and this market is vital to our economy and to our current economic recovery.
Too many consumers have had to pay more for their auto loans simply because of their race or other characteristics protected under the law. Too often, these consumers do not know they are paying more or are simply unable to get recourse. Today’s action signals new attention to this serious problem.
The Consumer Bureau enforces the Equal Credit Opportunity Act, or ECOA, which prohibits lenders from discriminating against loan applicants on the basis of characteristics like race and national origin. Earlier this year, we reminded lenders offering auto loans through dealerships, like Ally, that they are accountable for complying with fair lending laws in their indirect lending programs. We made it clear that we will take action to address discrimination in any form.
When consumers finance auto purchases from a dealership, the dealer may facilitate indirect financing through a third-party lender like Ally. Ally finances auto loans from over 12,000 dealers across the country. Through its indirect financing program, Ally sets a minimum interest rate that a dealer charges a borrower. Ally then allows the dealer to increase – or markup – the interest rate and shares the profit made from the markup with the dealer. As a result, both Ally and the dealer have financial incentives for interest rates to be marked up to consumers.
Through the Consumer Bureau’s examination of Ally’s indirect auto lending program, and acting jointly with the Department of Justice, 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.
In addition to requiring Ally to pay $98 million to resolve these issues, today’s order establishes a new compliance framework. Ally will work together with the Bureau and the Department of Justice to monitor dealer markup in order to prevent future discrimination or will seek to eliminate dealer markups altogether. Within this framework, Ally will be able to exercise its business judgment about how to achieve compliance with fair lending law, but has agreed to confer regularly with the Bureau in working to achieve this outcome.
At the Consumer Bureau, we are committed to fair and equal access to credit for all consumers. In fact, it is one of our statutory responsibilities as a financial regulatory agency. Whether or not Ally consciously intended to discriminate makes no practical difference. In fact, we do not allege that Ally did so. Yet the outcome, and the harm to consumers, is the very same here.
Today’s action fulfills part of our Congressional mandate to identify and address discriminatory lending practices. We intend to create a fair marketplace for all consumers, and we look forward to working closely with Ally in the years ahead to achieve this goal. Thank you.
The Consumer Financial Protection Bureau is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives. For more information, visit www.consumerfinance.gov.