Magazine article American Banker

Ally Holds Firm against CFPB's Auto Lending Push

Magazine article American Banker

Ally Holds Firm against CFPB's Auto Lending Push

Article excerpt

Byline: Kevin Wack

Changing the way auto loans get priced at thousands of car dealers across the country is proving a tall task for the federal government.

The Consumer Financial Protection Bureau and the Justice Department for well over a year have locked horns with lenders and dealerships over the discretionary markups that auto salesmen add to the price of loans. At issue is the effect of the pricing system on minorities.

The CFPB in December reached a $98 million settlement with Ally Financial, one of the nation's largest automobile lenders, in a deal that offered incentives for the company to switch to a flat-fee pricing model.

Under a flat-fee system, auto dealers would receive a fixed amount of compensation for each loan, rather than a sum that varies depending on the outcome of their negotiation with each car buyer.

But despite the pressure to switch to flat fees, Ally Chief Executive Michael Carpenter made clear this week that his company will stick with the industry's longstanding way of doing business.

"We are not going to be the Trojan horse for driving industry change," Carpenter said in strongly worded remarks to Automotive News.

"That is obviously not what the CFPB wanted to hear. They thought we were going to cave," he was quoted as saying.

CFPB officials say their goal is not to end the markup system, which is sometimes called dealer rate participation.

The CFPB and Justice have been investigating instances where legally protected classes of borrowers, such as racial minorities, may have paidlarger markups than other consumers with a similar credit profile.

The average African-American car buyer who received an Ally loan paid more than $300 in additional interest over the course of the loan's term than a similarly situated white borrower, according to the December consent order. Ally maintains that it does not engage in discriminatory practices.

Auto dealers and their allies on Capitol Hill have blasted the CFPB, but agency officials deny that they are insisting on lenders switching to a flat-fee system. The CFPB has suggested other options that would also remove discretion from the auto dealers.

Still, the CFPB's statements and recent actions suggest that the agency is trying to upend the status quo.

"What we think is problematic is when, if creditworthy determination has been made and there's a rate that is gauged, that somehow that rate will be pushed up because of financial incentives for people to push that up higher at the expense of the consumer," CFPB Director Richard Cordray said during congressional testimony last month.

The Ally consent order gave the Detroit lender an unpalatable choice. The company could either switch to a system that takes pricing discretion away from the auto dealers, or it could implement a monitoring program that may require Ally to write checks on a rolling basis to any minority borrowers who are deemed to have paid too much. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed


An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.