Ally Financial Inc. will have to shell out $98 million to resolve the government's biggest-ever auto-loan discrimination settlement.
The Justice Department and the Consumer Financial Protection Bureau announced Friday that the company will pay $80 million in damages to around 235,000 African-American, Hispanic and Asian and Pacific Islander borrowers, The Associated Press reported.
The settlement came after federal officials claimed the company was illegally charging minority borrowers higher rates on auto loans compared with white auto buyers who had similar credit histories.
Ally, which is paying an additional $18 million in penalties, doesn't directly make auto loans. The online bank buys loan contracts made by dealerships, setting an interest rate and allowing the dealers to charge borrowers a higher rate, known as dealer markup.
The company sets rates based solely on borrowers' credit and doesn't practice discrimination, Ally said.
The U.S. Consumer Financial Protection Bureau and the Department of Justice began probing the group after "significant differences" were noticed in interest rates on car loans paid by black, Hispanic and Asian borrowers compared with those paid by white customers, Bloomberg earlier reported.
The agency's work has indicated a "significant risk of discriminatory pricing outcomes," said Patrice Ficklin, the bureau's assistant director for fair lending.
"What we've already seen amounts to tens of millions of dollars in overpayment," Ficklin said, and "the total could be much greater than that."
The bureau is working to guide the practice known as "dealer mark-up," which auto dealers call "dealer-assisted financing." Banks work as indirect lenders, while dealers are allowed to add points to the interest rate and keep the difference.
"Numerous institutions" have disparities not explained by differences in credit quality of more than 10 basis points, while others reach 20 or 30 basis points, according to the AP.
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