Ally, CFPB poles apart on discrimination breadth, evidence

NEW ORLEANS — Ally Financial and the Consumer Financial Protection Bureau are miles apart on core issues, such as how to measure discrimination and how widespread it is, says Ally CEO Michael Carpenter.

"There are some very, very fundamental differences," Carpenter told Automotive News. "They've got deeply embedded views that are very difficult to influence."

Ally Financial signed a consent order with the CFPB and the U.S. Department of Justice in December. Ally agreed to pay $98 million in refunds and penalties to settle allegations that Ally allowed discrimination by letting dealers set consumers' interest rates as part of dealer reserve.

At the CFPB, "The presumption is that discrimination is widespread. It's a big deal," Carpenter said. "Is there smoke? Yes. Is there evidence of widespread discrimination? No."

Ally says dealerships should have leeway to vary the dealer reserve based on factors the CFPB doesn't recognize, Carpenter said.

For instance, it might not be discrimination to charge more for a subprime customer than for a prime-risk customer because it takes more time and effort to make a deal for a customer with a low credit score. Also, subprime loans are more prone to default, Carpenter said. In a default, the dealership might have to give up its profit, he said.

"There's no reason dealer markup shouldn't reflect it when the dealer is taking more credit risk and the dealer does more work," Carpenter said.

Dealer reserve, also known as dealer markup, is the interest, typically less than 2 percentage points, that lenders allow a dealership to add to the buy rate on a consumer auto loan as compensation for acting as a middleman on the loan.

The CFPB considers it discrimination if legally protected classes of borrowers, such as minorities or women, pay a higher rate than "similarly situated" borrowers who don't belong to those groups.

Ally says a case also could be made that it's not discrimination for a dealership in a high-cost metro area to charge a higher rate than a dealer in a low-cost area. Yet when those loans are analyzed side by side, it could look like the high-cost dealer is practicing discrimination, Ally said. The CFPB analyzes lenders' loans on a dealership-by-dealership and portfoliowide basis.

The CFPB declined to comment for this article. But speaking at a conference here, CFPB Assistant Director Patrice Ficklin said that it's OK for lenders to take risk and the customer's creditworthiness into account when they set the customer's buy rate, but not for dealerships to do so when they set dealer reserve.

Ficklin said her agency has heard the "time and effort" and "high-cost" arguments but hasn't seen data to support them.

You can reach Jim Henry at

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