Obama Bullied Bank to Pay Racial Settlement Without Proof: Report

Paul Sperry, New York Post, February 7, 2016

Newly uncovered internal memos reveal the Obama administration knowingly exaggerated charges of racial discrimination in probes of Ally Bank and other defendants in the $900 billion car-lending business as part of a “racial justice” campaign that’s looking more like a massive government extortion and shakedown operation.

So far, Obama’s Consumer Financial Protection Bureau has reached more than $220 million in settlements with several auto lenders since the agency launched its anti-discrimination crusade against the industry in 2013. Several other banks are under active investigation.

That’s despite the fact that the CFPB had no actual complaints of racial discrimination–it was all just based on half-baked statistics.

A confidential 23-page internal report detailing CFPB’s strategy for going after lenders shows why these companies are forking over millions of dollars in restitution and fines to the government despite denying any wrongdoing.

The high-level memo, sent by top CFPB civil-rights prosecutors to the bureau’s director and revealed by a House committee, admits their methods for proving discrimination were seriously flawed from the start and had little chance of holding up in court. Yet they figured they could muscle Ally, as well as future defendants, with threats and intimidation.

“Some of the claims being made in this case present issues, such as use of [race] proxying and reliance on the disparate-impact doctrine, that would pose litigation risks meriting serious consideration prior to taking administrative action or filing suit in district court,” the Oct. 7, 2013, memo addressed to CFPB chief Richard Cordray acknowledges.

“Nevertheless,” it added, “Ally may have a powerful incentive to settle the entire matter quickly without engaging in protracted litigation.”

At the time, the Detroit-based bank was seeking permission from the Federal Reserve to remain a financial holding company. Without regulatory approval, Ally risked losing key business lines, primarily its insurance subsidiaries.

“Protracted litigation” would present “a high hurdle” to Ally retaining such status, the CFPB lawyers conspired.

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They huddled with FDIC and Federal Reserve officials to get them on board with their scheme; and the Fed assured them it would look favorably upon “a prompt and robust” settlement by Ally, while the FDIC confirmed that a quick resolution would help Ally pass its CRA exam.

So CFPB applied the screws to Ally, saying it had “statistical evidence” showing its participating dealers were “marking up” loan prices for blacks and Hispanics vs. whites (by an average of $3 a month). Ally fought back, insisting non-discriminatory factors, such as credit history, down payments, trade-ins, promotions and rate-shopping, explained differences in loan pricing. After conducting a preliminary regression analysis, the bank found these factors alone accounted for at least 70 percent of the “racial disparities” the government was claiming.

CFPB admits in the memo that it never considered these or other legitimate business aspects of the car deals it investigated: “Such factors were excluded as controls from the markup analysis.”

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Nevertheless, Ally caved and cut a deal. Prosecutors initially demanded $204 million in payola before settling on $98 million.

With Ally’s holding-company status set to expire Dec. 24, 2013, it formally settled on Dec. 20, and was reapproved by the Fed on Dec. 23, 2013.

With all these machinations hidden from public view, Cordray held a press conference to announce “the federal government’s largest auto-loan discrimination settlement in history.” He claimed that 235,000 minorities had been harmed by Ally, even though he didn’t know the race of a single borrower or whether they had actually been harmed.

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