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Ally Reaches $98M Settlement with DOJ, CFPB for Lending Discrimination

December 20, 2013

DETROIT — The Department of Justice and the Consumer Financial Protection Bureau (CFPB) announced Friday the federal government’s largest auto loan discrimination settlement in history to resolve allegations that Detroit-based Ally Financial Inc. and Ally Bank have engaged in an ongoing nationwide pattern or practice of discrimination against African-American, Hispanic and Asian/Pacific Islander borrowers in their auto lending since April 1, 2011.

The agreement is the first joint fair lending enforcement action by the department and CFPB. With this agreement, eight of the top 10 largest fair lending settlements in the department’s history have been under U.S. Attorney General Eric Holder’s leadership.

The settlement provides $80 million in compensation for victims of past discrimination by one of the nation’s largest auto lenders and requires Ally to pay $18 million to the CFPB’s Civil Penalty Fund. Ally also must refund discriminatory overcharges to borrowers for the next three years unless it significantly reduces disparities in unjustified interest rate markups. This system will create a strong financial incentive to eliminate discriminatory overcharges.

“With this largest-ever settlement in an auto loan discrimination case, we are taking a firm stand against discrimination in a critical lending market,” said Attorney General Eric Holder. “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. 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.”

The settlement resolves claims by the department and the CFPB that Ally discriminated by charging approximately 235,000 African-American, Hispanic and Asian/Pacific Islander borrowers higher interest rates than non-Hispanic white borrowers. The agencies claim that Ally charged borrowers higher interest rates because of their race or national origin, and not because of the borrowers’ creditworthiness or other objective criteria related to borrower risk. 

The average victim paid between $200 and $300 extra during the term of the loan. The Equal Credit Opportunity Act (ECOA) prohibits such discrimination in all forms of lending, including auto lending. Ally’s settlement with the DOJ, which is subject to court approval, was filed today in the U.S. District Court for the Eastern District of Michigan in conjunction with the DOJ’s complaint. Ally resolved the CFPB’s claims by entering into a public administrative settlement.

“Discrimination is a serious issue across every consumer credit market,” said CFPB Director Richard Cordray. “We are returning $80 million to hard-working consumers who paid more for their cars or trucks based on their race or national origin. We look forward to working closely with the Justice Department and Ally to make sure this serious issue will be addressed appropriately in the years ahead as well.”

Rather than taking applications directly from consumers, Ally makes most of its loans through over 12,000 car dealers nationwide who help their customers pay for their new or used car by submitting their loan application to Ally. Ally’s business practice, like most other major auto lenders, allows car dealers discretion to vary a loan’s interest rate from the price Ally initially sets based on the borrower’s objective credit-related factors.

Dealers receive greater payments from Ally on loans that include a higher interest rate markup. The coordinated investigations by the department and the CFPB that preceded today’s settlement determined this system of subjective and unguided pricing discretion directly results in Ally’s qualified African-American, Hispanic and Asian/Pacific Islander borrowers paying more than qualified non-Hispanic white borrowers.

The agencies claim that Ally fails to adequately monitor its interest rate markups for discrimination or require dealers to document their markup decisions. Ally’s first effort to monitor for discrimination in interest rate markups began only earlier this year after it learned of the CFPB’s preliminary findings of discrimination, and resulted in only two dealers being sanctioned and subjected to nothing more than voluntary training. 

“Ally does not make loans directly to consumers, but rather, it purchases installment contracts originated by auto dealers,” Ally said in a statement obtained by F&I and Showroom. “Ally’s long-time process for evaluating auto installment contracts from dealers does not include information on a consumer’s race or ethnicity. Ally assesses these contracts and sets pricing based solely on a consumer’s creditworthiness and contract characteristics.

“The CFPB and DOJ assert that pricing disparity has occurred for certain protected classes of consumers as a result of the auto dealer’s ability to mark-up Ally’s rate at which it buys a retail installment contract,” the statement continued. “The CFPB and DOJ also assert that Ally has responsibility for the conduct of its dealer customers and allege that Ally has not sufficiently monitored the pricing practices of its dealer customers. 

“Ally 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.”

Today’s settlement represents the first resolution of the department’s joint effort with the CFPB to address discriminatory auto lending practices. The 2010 Dodd-Frank Act gave both the DOJ and the CFPB authority to take action against large banks like Ally for violating the ECOA. Although the department has filed previously filed lawsuits alleging violations of ECOA involving car loans, today is the first ECOA lawsuit against an auto lender that operates nationwide.

“This settlement provides relief to those who were harmed by this discrimination,” said U.S. Attorney for the Eastern District of Michigan Barbara McQuade. “Lenders must consider an individual borrower’s credit worthiness, based on income, savings, credit history and other objective factors when determining the terms of a loan. This settlement will ensure that in the future, borrowers will be able to obtain loans from Ally based on their own credit history free from discrimination based on race or national origin.”

In addition to the $98 million in payments for its past conduct and requirement to refund future discriminatory charges, the settlement requires Ally to improve its monitoring and compliance systems. The settlement allows Ally to experiment with different approaches toward lessening discrimination and requires it to regularly report to the department and the CFPB on the results of its efforts as well as discuss potential ways to improve results.

The settlement provides for an independent administrator to locate victims and distribute payments of compensation at no cost to borrowers whom the department and the CFPB identify as victims of Ally’s discrimination. The department and the CFPB will make a public announcement and post information on their websites once more details about the compensation process become available. Borrowers who are eligible for compensation from the settlement will be contacted by the administrator, and do not need to contact the department or the CFPB at this time. 

Comments

  1. 1. Leroy Royston [ December 20, 2013 @ 09:40AM ]

    Just another example of this administration using race as a reason to extort money from Businesses. Jessie Jackson & Al Sharpton will get their usual share I'm sure.

  2. 2. STEVEN J. [ December 20, 2013 @ 01:30PM ]

    I AM CURIOUS HOW THEY DISCRIMINANTED AGAINST THEM HOW DID THEY KNOW WHAT THE RACE WAS FOR ANY CONTRACT? THE LAST TIME I CHECKED NOWHERE ON A CREDIT APPLICATION DOES IT ASK YOUR RACE.

  3. 3. Cindy P [ December 20, 2013 @ 02:54PM ]

    Ally didn't discriminate against anybody. If my name is Black, that doesn't make me black. If my name is White, that doesn't make me white. If my name is Green, that doesn't make me green. And, if my name is Hernandez, that doesn't make me a Mexican. Ally doesn't have any idea what race they are approving/funding. This is one of Obama's minions, Richard Cordray, out there doing what Obama told him to do. Eric Holder belongs behind bars as it is. What a mockery these people are making of our country!

  4. 4. David Ruggles [ December 20, 2013 @ 03:45PM ]

    This settlement sucks but this speculation is "out there." BTW, the DOJ also recently reached a settlement with a Mitsubishi dealership who gave preferential treatment to Asians. I think it all sucks and it is cowardly to settle. This needs to go to court so we can resolve "disparate impact" once and for all.

  5. 5. David Ruggles [ December 20, 2013 @ 05:48PM ]

    This settlement sucks but this speculation is "out there." BTW, the DOJ also recently reached a settlement with a Mitsubishi dealership who gave preferential treatment to Asians. I think it all sucks and it is cowardly to settle. This needs to go to court so we can resolve "disparate impact" once and for all.

  6. 6. Kevin Ellis [ December 20, 2013 @ 07:40PM ]

    I agree with all of the above, This is crazy most of the approval process is computerized, if the system doesn't approve your loan it's becuase the system noticed a blemmish in your credit or the structure of your requested loan does meet their requiremnets. If your loan doesn't meet their requiremnets then a analyst will work the loan and then put a offer together for the customer, in which case this now may be structured as higher risk loan for the bank, which means the bank has a right to earn more money for lending to higher risk customers. If the customer does not want the loan because of the rate they can go get a loan on their own, there free to say no! This leanding process works exactly the same way bonds work for companies and countries, if your a high risk your interest rate is also higher....I don't undersatnd what this bank did wrong, agian this administration is scary, all of these fines will be passed on to the consumer this is another tax on the middle class...

  7. 7. Billy Rerucha [ December 21, 2013 @ 10:52AM ]

    Before long everything is going to be Grey. All middle class people that aren't aloud to use common sense or speak the truth any longer without being penalized or fined. Maybe Eric Holder was a C tier when he bought his Deville with 22s. After all you can certainly tell what color he is by his name. This Country needs a nut check.

  8. 8. GLENN HANNAH [ December 23, 2013 @ 11:46AM ]

    BIGGEST BUNCH OF BS I HAVE EVER HEARD OF. BEEN IN CAR BUSINESS FOR 28 YEARS, AND 26 OF THEM IN FI. IF U BORROW MONEY FROM A BANK, THEY MAKE MONEY ON YOU, OR ANY OTHER KIND OF LOAN. ITS ALWAYS THE CAR BUSINESS THEY ARE TRYING TO SCREW. LAST TIME I CHECKED, IF THESE INDIVIDUALS DIDNT LIKE THE RATE, THEY DIDNT HAVE TO SIGN.

  9. 9. Kevin Anderson [ December 28, 2013 @ 08:58AM ]

    Why is rate mark up considered discrimination but front profit not? Both are negotiated... Both are typicallty less for highly educated, higher credit scores, etc. If you don't pay your bills, you deserve what you get. Why are Police officers trained to "profile?" There is no difference.

  10. 10. Stormy22 [ December 31, 2013 @ 11:22AM ]

    Im a very unhappy customer of Ally. Please check out/like my page -Ally Financial 's Unhappy customers: https://www.facebook.com/pages/Ally-Financials-Unhappy-Customers/367933486670751?ref=hl

  11. 11. Frank [ January 04, 2014 @ 01:57PM ]

    I'm sure most of these loans were subprime loans so therefore many of these folks are not as savy as people in the prime markets. People in prime markets are just better negotiators. The sub prime market is made up of a lot of people from all races but a majority of them may be minorities due to being caught up in welfare and government assistance programs. Maybe Jimmy Carter should not have created the subprime market back in the seventies with The Community Reinvestment Act so that we wouldn't need The Consumer Protection Agency at this point. It seems to me the one who created the problem is now trying to fix it! What it comes down to is that a large section of the subprime market shouldn't even exist due to this exact reason. If the government doesn't want these people to make bad financial mistakes stop requiring lenders to give loans to lower income communities which are a large part of the subprime market.

  12. 12. Max [ January 05, 2014 @ 06:44PM ]

    Ally and the dealers were working within the laws set up and approved therefore they should not be sbject to anything. It is not illegal or unjust to make money, afterall how else will the dealers and Ally pay for all the oter mandates? Amazing, lawyers can legally charge you 80% of the title insurance when purchasing a home! And last time I went to a sporting event I paid $10 for a bottle of beer and so did the other people of race but no one is suing them.

  13. 13. howell clark [ January 06, 2014 @ 08:10AM ]

    many truthful statements above ,even though many of them tend to be on the outrage side, which is understandable. the net results of this cowardice on holders and allys deal will be that many banks will set a straight fee for loan amounts soon if they haven't already done so, and on top of that they will tighten up reguirements which of course means fewer approvals. holders deal will mean that fewer folks on the low income less ability scale will now be locked out of the market of most third party finance. funny how their attempts at leveling the playing field in the name of fairness and good intentions will be more discrimination by lack of loans to secure a better ride.

  14. 14. Doc [ November 06, 2015 @ 03:49PM ]

    Some of your comments are ridiculous...
    If you are not African-American or Hispanic, you don't know what it means to be discriminated against in every walk of life. It goes from police profiling to be followed by someone in the grocery store. I work at a car dealership. I see my GM and F&I Manager always adding extra point on interest rates for minorities.

 

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