For Ally, a sting but no big bite

Jim Henry is a special correspondent for Automotive News.

Ally Financial Inc.’s $98 million consent order with the Consumer Financial Protection Bureau and U.S. Justice Department in December had to sting. But the payment is likely to amount to less than three months’ worth of the company’s 2013 earnings.

Ally said last week it expects fourth-quarter 2013 net income of $90 million to $110 million. It also said it would book a $98 million pretax charge in the quarter related to the consent order.

The company is expected to announce its complete fourth-quarter and full-year 2013 results on Feb. 6.

Last month, Ally settled charges that its method of paying dealerships for arranging customer financing had resulted in minorities paying higher interest rates. The method, known as the dealer reserve, allows dealerships to add a small amount of interest to the lender’s buy rate on an auto loan as compensation for negotiating the loan.

Ally’s settlement included $80 million in restitution and a penalty of $18 million.

Ally said in a statement that while it had agreed to the consent order, it “does not engage in or condone violations of law or discriminatory practices.” The company added that it “does not believe that there is measurable discrimination by auto dealers.”

The consent order invited Ally to submit what the CFPB calls a “Non-discretionary Dealer Compensation Plan” as a substitute for dealer reserve.

In the past, the CFPB has suggested that the industry consider switching to a flat-fee system.

During 2013, several other auto lenders disclosed that the CFPB was analyzing their loan portfolios, too. It’s safe to say those other lenders and their dealers are watching Ally’s example with interest.

You can reach Jim Henry at autonews@crain.com

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