Without admitting wrongdoing, Ally agreed to pay restitution of $80 million and an $18 million penalty. It also agreed to work with the Consumer Financial Protection Bureau and the Department of Justice to monitor dealer loan pricing to prevent discrimination.
Ally, which is no longer part of GM, has the option of eliminating dealer markups of interest rates altogether, government officials said Friday.
The case, part of a campaign to end disparities in pricing of all types of loans, is the consumer bureau’s first enforcement action against the “serious problem” of discriminatory lending in the auto business, bureau director Richard Cordray said at a news conference in Washington.
“Too many consumers have had to pay more for their auto loans simply because of their race,” Cordray said. “Too often, these consumers do not know they are paying more or are simply unable to get recourse.”
Ally, based in Detroit, does not lend directly to consumers. It instead funds loans written by 12,000 auto dealers across the country, making it a major player among dozens of such indirect auto lenders.
The indirect lenders set a minimum interest rate that a dealer charges a borrower, but dealers can raise the rate and split the increased profit with the lenders. They are barred, though, from charging racial and ethnic minorities more than non-Hispanic white customers.
Officials said that they hoped the settlement would encourage other indirect auto lenders to monitor dealer pricing of auto loans to avoid discrimination.
The consumer bureau and the Justice Department are conducting joint investigations of discriminatory lending in automotive finance as well as in mortgages and other areas, said Justice Department attorney Eric Halperin, a predatory lending expert who is spearheading the campaign.
The contracts Ally buys from dealers do not include racial and ethnic information, the company said in a statement.
“Ally does not engage in or condone violations of law or discriminatory practices,” it said, “and based on the company's analysis of its business, it does not believe that there is measurable discrimination by auto dealers.”
Federal authorities did not accuse Ally of direct discrimination. But they said the company was aware that dealer markups create a high risk for unfair lending practices, and contended Ally should have monitored the dealers to prevent this.
The Latinos and Asian Americans identified as victims typically paid $200 extra over the life of their loans and African Americans $300, officials said. Dealers unfairly tacked on an average of about a quarter of 1% to their interest rates, the government said.
About 235,000 auto buyers that the government says were overcharged beginning in 2011 were to be contacted and given rebates. Individuals with questions or complaint were asked to call the consumer bureau at (855) 411-2372.
Ally was founded in 1919 as General Motors Acceptance Corp., providing financing for the automaker’s customers. It received a $17.2 billion federal bailout during the financial crisis after running up huge losses at a subprime mortgage arm. It has since repaid $12.3 billion to the Treasury Department.
Halperin said the government’s stake in Ally played no part in the decision to seek the settlement.