With today's settlement with Ally Financial, Inc. and Ally Bank (Ally), the Consumer Financial Protection Bureau and Department of Justice took a major step to combat the longstanding problem of discrimination in car loans originated by automobile dealers.
The practice that leads to this discrimination is auto loan "markups," when car dealers charge their customers higher rates than they qualify for. The dealer then retains some or all of the difference from the loan purchaser as compensation. During the past decade, these markups have been the subject of a number of lawsuits that found that markups led to discrimination against car buyers of color, who were charged more than white buyers with the same qualifications, and were more likely to have their interest rates increased. CRL has found that this practice added $25.8 billion in hidden interest to all US car buyers over the life of car loans made in 2009.
"It is notable that even though Ally capped the amount of the markups that dealers could charge, numerous violations of fair lending laws occurred," said CRL's Chris Kukla. "While markup caps are touted as a solution to unfair treatment, the settlement shows that caps do not stop discriminatory treatment."
In taking this action against Ally, CFPB and DOJ are making good on their promise to hold lenders accountable for funding discriminatory auto loans from car dealers. We applaud both agencies' continued work on this issue. As an alternative to markups, dealers should be compensated in a way that is fair for all parties involved.
For more information, contact Chris Kukla at (919) 308-0770 or email@example.com.