Ally Settles with CFPB

As recently illustrated in the February 3rd edition of Automotive News, the Consumer Financial Protection Board (“CFPB”) and US Department of Justice reached a $98 million dollar settlement with Ally Financial for engaging in discriminatory lending to consumers. The CFPB analyzed approximately 800,000 contracts, which Ally had purchased from dealerships between April 2011 and March 2012 and found certain minority groups paid 0.2 to 0.29 percent points more than similarly situated non-Hispanic whites. As part of the settlement, Ally has elected to continue with the dealer reserve system but must analyze loans from dealerships for variations in dealer reserve on an quarterly basis at both the dealership level and portfolio level. To be in compliance with CFPB guidelines, the variation in dealer reserve between minority and non-minority customers must be within 0.1 percentage points.

Under the agreement, if Ally were to find disparities in lending to minority customers at the dealership level they must come up with a corrective action plan to address the situation. These corrective actions can range from Ally limiting the dealership’s ability to exercise discretion in setting its dealer reserve or eliminate lending with the dealership altogether.

This is a huge development in the automotive industry, especially for dealerships that utilize Ally as its primary lending source.  While it is unknown if other finance companies will be required to undergo similar reviews; however, all dealers should be on alert.  Dealerships should review their current finance processes to ensure that they are compliant with these standards.  Dealerships also should consider implementing the following best practices to eliminate the potential for discriminatory practices in the finance office:

  • Perform an assessment to ensure that the difference between the rate charged to minority and non-minority customers does not exceed 0.1 percent.
  • Create a lending policy that establishes a standard mark-up on the buy rate for all finance customers to eliminate discretion for finance personnel to set rates.
  • Any deviation from the standard mark-up should be documented in the file. Documentation should show the deviation is for competitive reasons that would not be in violation of the Equal Credit Opportunity Act.
  • Require management approval for such deviations.
Frank O'Brien, CPA, CIA, CFE

About Frank O'Brien, CPA, CIA, CFE

Since joining the firm in 1998, Frank has worked both with closely held businesses and non-profits, specializing in the automotive industry. For the past seven years, Frank has managed the internal audit and fraud division at the firm.



Frank O'Brien, CPA, CIA, CFE
Author: Frank O'Brien, CPA, CIA, CFE
Since joining the firm in 1998, Frank has worked both with closely held businesses and non-profits, specializing in the automotive industry. For the past seven years, Frank has managed the internal audit and fraud division at the firm.