The Consumer Financial Protection Bureau (CFPB) and the Department of Justice on Dec. 20 ordered Ally Financial and Ally Bank to pay $80 million to borrowers and $18 million in penalties in the largest auto loan discrimination settlement in history. More than 235,000 African-American, Hispanic, and other minority car loan borrowers allegedly received unfair interest rates through Ally Financial, according to federal regulators.
"Too many consumers have had to pay more for their auto loans simply because of their race or other characteristics protected under the law," said CFPB director Richard Cordray. "Discrimination is a serious issue across every consumer credit market." Many consumers do not realize that they are paying more than necessary or are unable to get help in challenging it, he added.
Ally maintains that it does not engage in discriminatory practices, noting that it does not make loans directly to consumers but instead purchases installment contracts originated by auto dealers. Under the settlement, Ally must either monitor dealer markups against future discrimination or eliminate the markups outright. The company also must establish a compliance program to prevent future discrimination, including dealer education and analysis of pricing data for disparities. Until this program effectively eliminates disparities, Ally must pay harmed consumers each year under the order -- or it can move away from dealer markups to a nondiscretionary dealer compensation structure that eliminates its obligation to monitor the fair lending risk of dealer markups.