Ally Financial Settles With Government for $98 Million

The U.S. government reached a $98 million settlement with auto-lender Ally Financial Inc., marking the government’s biggest case against a lender for alleged discrimination in the car-loan market.

Ally, the third-largest U.S. auto lender, on Friday settled allegations by the U.S. Department of Justice and Consumer Financial Protection Bureau that the company discriminated against 235,000 minority borrowers by charging them higher interest rates.

Under the settlement, Ally will pay $80 million in compensation for victims of discrimination and $18 million in penalties. Consumers are expected to receive $200 to $300 on average, but the exact figure will depend on the amount of the interest-rate differences.

The action stems from a wide probe into discrimination in the auto-lending market, with officials scrutinizing several banks and auto-finance companies. Federal officials contend the industry’s system of making loans through auto dealers increases the risk of discrimination, even if unintentional, since dealers are able to add extra interest-rate charges to consumers as compensation for setting up the loan. Officials say the system provides a financial incentive for dealers to charge higher rates because they earn more compensation by doing so.

“Whether or not Ally consciously intended to discriminate makes no practical difference” for consumers, said CFPB Director Richard Cordray.

In the case of Ally, government officials said the company charged minority borrowers interest rates about 0.2 to 0.3 percentage point higher than those charged to white borrowers.

Ally won’t be required to eliminate the practice of allowing dealers to mark up loans under the settlement, but will have to show government officials it isn’t discriminating.

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“Based on the company’s analysis of its business, it does not believe that there is measurable discrimination by auto dealers,” the company said.

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