Posted on April 14, 2015

Do Two Half-Victims Make a Whole Case?

Wall Street Journal, April 13, 2015

Welcome to the new frontier of progressive law enforcement: extorting damage awards from businesses without naming anyone who’s been damaged.

More than a year after persuading Ally Bank to pay $80 million to allegedly abused borrowers, the Consumer Financial Protection Bureau (CFPB) still hasn’t distributed a nickel to the alleged victims. Is it possible that victims aren’t getting paid because there are no victims?

Recently we told you about the bizarre federal campaign against auto lenders in which bureaucrats guess the ethnicity of borrowers based on their last names and addresses. The feds then claim discrimination in interest rates if the people they assume are minorities on average pay more than similar borrowers that the feds assume are white. This is not a joke.

By law, auto dealers who offer financing to car buyers are not allowed to record a borrower’s race. But bureau staff and their colleagues at the Obama Justice Department still want to sue the banks that provide these loans. So they assign probabilities for the race of the borrowers based on their names and where they live.

It’s good enough for government work. But what if one day the government has to identify the victims, verify that they really are members of minority groups and confirm that they suffered discrimination? That task is proving to be difficult.

Ally agreed to fork over the $80 million in damages (and $18 million in penalties) in December 2013. The bureau said that “discriminatory pricing differences resulted from Ally giving dealers the ability and incentive to mark up interest rates” and that this pricing and compensation structure “injured more than 235,000 minority borrowers.” But remember, 235,000 was a guess, and 16 months later the number of victims who have been identified and paid is–zero. The problem isn’t Ally, which says it deposited $80 million into an escrow account in January 2014.


Economist Marsha Courchane of Charles River Associates recently co-authored a critique of the bureau’s methods for spotting discrimination in auto lending. She tells us that if the bureau used its current methodology in the 2013 Ally case, fractions of borrowers would be added together to generate the total.

In other words, if two borrowers each have a 50% chance of being black, they would count as one black borrower. In reality, both could be white, black, Asian, or members of any other racial category. But at the CFPB two fractions can add up to one victim.

This is supposed to qualify as a great leap forward in the politics of racial grievance–not just protected classes of people but protected fractions of people, or perhaps aggrieved percentages of people.

But how do you distribute money to fractions of victims? A bureau spokesman tells us that “payments cannot be sent until all affected consumers have been given a full opportunity to participate in the settlement, which requires extensive preparation and outreach.” We can only imagine.