Ally Bank Under Investigation For Subprime Auto Loans, Again

We reported previously that the Consumer Financial Protection Bureau went after Ally Bank in December of 2013 for subprime lending. That company is making new headlines one year later. The reasoning for the CFPB was disparate impact—specifically, that Ally Bank’s actions negatively impacted certain borrowers to the tune of $200-$300 dollars each over the course of their loans. A CFPB press release from December of 2013 reads, “Ally Financial Inc. and Ally Bank have markup policies that have resulted in illegal discrimination against over 235,000 African-American, Hispanic, and Asian and Pacific Islander borrowers.” The CFPB reached its conclusions based on statisticians looking at data verses hidden cameras and secret shoppers. They decided that the interest rates accepted by 235,000 individuals were discriminatory. The CFPB ended up fining Ally Bank $98 million dollars for their perception of lending discrimination.

Now, in December of 2014, the AP has reported that the Department of Justice has subpoenaed Ally Bank in regards to their subprime automotive lending practices. This announcement occurred in conjunction with their most recent SEC filing, which indicated that the government is selling off its last stake in the previously bailed-out organization. A LexisNexis report on this subject in part states, “the U.S. Department of Justice has requested internal documents as part of its ongoing probe into subprime auto lending, months after the lender received a subpoena connected to securities regulators’.”

The report that the financial institution has received another inquiry into their subprime practices comes at a time when subprime auto loans are of increasing national interest. There is a mounting fear that subprime auto lending will grow into a subprime auto lending bubble, which will burst and cause financial chaos. The New York Times dug into this subject in an in-depth piece on the matter this past June. The report seemed to show subprime loans on the rise, however, we reported just weeks ago that auto loan default rates are actually declining. It may take a number of years to know the impact of subprime auto lending. The question is, what will the government do between now and then? Will they continue to go after larger lending institutions or direct their investigations into dealer groups and dealerships?