Ally to Pay $98M in Lending Discrimination Settlement

By FOXBusiness

The U.S. government on Friday announced a $98 million settlement with Ally Financial (NYSE: GOM) over charges the big auto lender discriminated against minorities by charging them higher interest rates.

The Department of Justice and the Consumer Financial Protection Bureau said Ally discriminated against blacks, Hispanics and Asians/Pacific Islanders by allowing their dealers to charge those groups higher rates than whites.

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The dealers allegedly charged some 235,000 minority customers the higher rates based on race rather than a documented credit history, according to the complaint. The borrowers paid on average about $200 to $300 extra over the life of the loan.

The settlement marked the first joint fair lending enforcement action between the Justice Department and the CFPB, which was established under the 2010 Dodd-Frank financial reforms.

Ally will pay $80 million in compensation back to consumers who were discriminated against, and an $18 million penalty.

Ally didn’t confirm or deny the charges as part of the settlement.

In a statement, Ally said it doesn’t make loans directly to consumers but buys installment contracts from dealers. Ally said race and ethnicity aren’t considered as part of their evaluation of those contracts.

“Ally assesses these contracts and sets pricing based solely on a consumer’s creditworthiness and contract characteristics,” the statement said.

While acknowledging the allegations by the CFPB and DOJ that dealers had “marked up” Ally’s rates causing a “pricing disparity for certain protected classes of consumers,” as well as the government’s contention that Ally is responsible for the conduct of its dealers, Ally distanced itself from the charges.

“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,” the statement said.

Ally said it expects to take a $98 million charge in the fourth quarter related to the settlement.

Ally’s shares were up 1 cent, or 0.04%, at $25.13 at 11 a.m. EST.