The New York Department of Financial Services (NYDFS) entered into a consent order with a state-owned bank based on alleged discrimination in the pricing of auto loans, with the alleged discriminatory acts committed by auto dealers with with which the bank is associated.
According to the consent order, the bank worked with car dealerships to fund car loans. When dealerships had customers who wanted to finance an automobile purchase, dealerships would send the relevant application and underwriting information to the bank, and the bank would determine the minimum interest rate at which it would agree to purchase the loan from the dealership. . The bank did not meet or interact with the customers, and it received no information about the customers’ race or national origin.
Once the bank set the minimum interest rate at which it would purchase the loan, dealers could add a markup to the interest rate, up to certain limits. The bank’s compensation to concessionaires on a loan would be based on the difference between the bank’s minimum interest rate and the concessionaire’s mark-up rate.
The NYDFS found that mark-up amounts (which were decided solely by dealers) were higher on average for black, Hispanic, and Asian borrowers than for similarly situated white borrowers. NYDFS noted that it found no evidence of intentional discrimination by the bank or its employees, and that the bank never knew the race or national origin of the borrowers. However, NYDFS found that the bank’s policies and practices gave auto dealers the discretion to mark up consumer interest rates above the minimum rate at which the bank would purchase the loan, resulting in a disparate impact on the basis of race and national origin. NYDFS further noted that the bank does not monitor these dealers’ profit margins for potential fair lending risk.
Based on the above, NYDFS found that the bank violated New York’s Credit Non-Discrimination Act. As part of the consent order, the bank agreed to pay a civil penalty of $950,000 and set up a restitution program for affected borrowers.