Ally Financial Inc. agreed to pay $98 million to settle U.S. Justice Department and regulatory claims that it marked up interest rates on auto loans to African-American and Hispanic borrowers.
Since 2011, Ally Financial has caused about 235,000 minority borrowers to pay higher rates, according to a lawsuit filed today at federal court in Detroit. Ally will pay $80 million to settle the U.S. civil allegations and $18 million to resolve parallel claims by the Consumer Financial Protection Bureau, according to a Justice Department statement.
“With this largest-ever settlement in an auto-loan discrimination case, we are taking a firm stand against discrimination in a critical lending market,” Attorney General Eric Holder said today in a statement.
The average African-American victim had to pay about $300 in additional costs during the term of the loan, and the average Hispanic was charged an extra $200, according to the complaint.
The CFPB earlier this year warned auto lenders about potential discrimination in a system the agency refers to as “dealer mark-up” and auto dealers call “dealer-assisted financing.” Under the system, financial companies make the loan indirectly, allowing dealers who arrange auto financing to add points to the interest rate and pocket the difference.
“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 company said in a statement. “Regardless, Ally takes the assertions by the CFPB and DOJ very seriously and has agreed to the terms in the orders.”
Consumer groups have said that the financing practice gives dealers an incentive to move buyers into costlier loans. Dealers say the markup is a standard practice in retail transactions and represents a reasonable price for their services, which include bringing in sales and handling paperwork.
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