Auto lender to pay record $98 million in discrimination case

The federal government is ordering Ally Financial to pay a record sum to minority borrowers who were treated unfairly by its practices.

The Detroit-based auto lender will pay $80 million to African-American, Hispanic, Asian and Pacific Islander borrowers and an additional $18 million penalty under the terms of a settlement with the Justice Department and the Consumer Financial Protection Bureau (CFPB) announced on Friday.

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According to the agencies, the lending firm made more than 235,000 minority borrowers pay higher interest rates than white people because of their race or national origin. Those rates resulted in an average of $200 to $300 extra for victims.

The total $98 million sum would be largest discrimination settlement with an auto lender in history.

“By requiring Ally to provide refunds to those who are overcharged because of their race or national origin, this agreement will ensure relief for Americans who are victimized,” Attorney General Eric Holder said in a statement on Friday. “And it will reinforce our determination to respond aggressively to discrimination in America’s lending markets – wherever it is found.”

The abuse occurred from 2011 to this December, government officials charged.

Under the terms of the settlement, the company will also be required to improve its monitoring and compliance systems.

Ally and other auto lenders provide third-party financing to people looking to buy a car or truck. The company sets an interest rate on its own and allows car dealers to charge a higher markup when finalizing the terms of the sale with the buyer. Dealers and lenders alike share the profits of that markup.

According to agencies, Ally failed to implement an effective program to make sure its loan portfolio was not discriminatory.

The CFPB has previously warned auto lenders not to discriminate and said that it will use a controversial doctrine to measure lending patterns.

Lenders have argued that the agency’s crackdown could make it harder for car buyers to negotiate better interest rates.

In a statement, Ally said that it “does not engage in or condone violations of law or discriminatory practices” and “does not believe that there is measurable discrimination by auto dealers,” but it nonetheless agreed to the orders.

The National Automobile Dealers Association condemned the action, and pushed the CFPB to disclose the methodology it uses to determine unintentional discrimination.

“The public still does not know whether the Bureau takes into account legitimate factors that can affect finance rates — for example, a dealer’s ability, regardless of race, to lower the interest rate to meet a customer’s monthly budget,” the trade group said in a statement.

— This story was updated at 2:15 p.m.