The New York Post had something of an overlooked bombshell report this weekend regarding a settlement reached between the Consumer Financial Protection Bureau and Ally Bank last year. This is a strange story and if it proves true it could seriously affect the reputation and position of the CFPB. The case in question was a very expensive settlement reached between the Bureau and Ally over charges that they engaged in a pattern of racial discrimination in their automotive loan lending practices, denying applications or charging higher fees to minority applicants. But according to some new documentation revealed by the Post, the charges were exaggerated at best.
Newly uncovered internal memos reveal the Obama administration knowingly exaggerated charges of racial discrimination in probes of Ally Bank and other defendants in the $900 billion car-lending business as part of a “racial justice” campaign that’s looking more like a massive government extortion and shakedown operation.
So far, Obama’s Consumer Financial Protection Bureau has reached more than $220 million in settlements with several auto lenders since the agency launched its anti-discrimination crusade against the industry in 2013. Several other banks are under active investigation.
That’s despite the fact that the CFPB had no actual complaints of racial discrimination — it was all just based on half-baked statistics.
The more you read into the details of this report, the more strange the tale becomes. The initial accusations against Ally certainly sounded pretty damning, painting a picture of a company which systematically discriminated against minority loan applicants. If true, that’s obviously cause for action by the federal government. But what did they base the claims on? First of all, as the article notes, Ally wasn’t even being accused of such practices. The charge was drawn from a study of loan application data, and to make the story even more bizarre, the reports they used to reach these conclusions didn’t even include any racial identification.
Ally complained CFPB’s entire case was based on “disparate impact” statistics, not actual complaints by consumers, and that those estimates relied on guesswork about the race of the borrowers. (The auto industry does not report borrower race, so CFPB tried to ID race by last name and ZIP code, a so-called “proxy” method that is wildly inaccurate.)
“The evidence of discrimination on the basis of race and national origin is strictly statistical,” the agency confessed in a report footnote.
So why would Ally pay up if the “evidence” was so thin? Ally needed permission from the Federal Reserve to retain their status as a financial holding company. Without that approval they would have lost massive amounts of business and the feds made it clear to them that the investigation into the racial bias charges was being looked at as part of the approval process. Their current charter as a financial holding company was set to expire on December 24th and they paid up to Uncle Sam on December 20th. Of course, I’m sure that’s all just a coincidence, right?
Read the full report because there’s plenty more meat on this particular bone. Internal memos from the CFPB even admit that their case was so thin that they would have faced “litigation risks meriting serious consideration” if they wound up having to fight Ally in court. But instead of having to stand before a judge they were able to twist the bank’s arm and get them to cave in and pony up the cash. This department was the brainchild of Elizabeth Warren and there were plenty of concerns expressed by conservatives when it was summoned into existence as I’m sure most of you recall. This story deserves a lot more coverage but it will probably get lost in the fog of the election.