Three federal agencies actively pursued two separate cases of alleged racial discrimination in lending activities over the past two weeks, requiring over $23 million in restitution to be paid to consumers.
First, on February 2, 2016, the DOJ and CFPB entered a consent order with Toyota Motor Credit Corp over allegations that it indirectly discriminated against minority borrowers by permitting dealers to mark-up interest rates on their loans in violation of ECOA. Toyota Motor Credit must pay up to $21.9 million in restitution.
The CFPB alleged that Toyota Motor Credit sets “buy rates” for consumers according to risk factors and other criteria, and it conveys those rates to auto dealers who are allowed to charge a higher interest rate. This “dealer markup” gives the dealers discretion to charge higher rates and receive additional compensation, which resulted in minorities paying higher interest rates. The CFPB alleges that Toyota Motor Credit was complicit in these markups which were sometimes as high as 2.5%.
The CFPB was careful to note that Toyota Motor Credit did not intentionally discriminate, and the investigation showed only that its policies had a discriminatory effect. The company has agreed to implement corrective policies.
Second, on January 19, 2016, HUD entered a conciliation agreement with First Tennessee Bank resolving allegations that the bank discriminated against minorities in its mortgage loan originations and that it allegedly failed to place bank branches in minority-populated locations.
The National Community Reinvestment Coalition filed a complaint with HUD, alleging that First Tennessee disproportionately originated loans to African-American and Hispanic borrowers and avoided placing bank branches in areas of Chattanooga, Knoxville, Memphis and Nashville where minorities primarily reside. HUD alleged that the bank’s actions violated the Fair Housing Act, which prohibits racial discrimination in the terms, conditions, or privileges of a home sale.
As a result, over a three-year period First Tennessee must create a $1.5 million subsidy fund to provide mortgage interest rate reductions and down payment or closing cost assistance to qualified borrowers in the affected areas. First Tennessee will also partner with at least one community-based organization to provide home-related services to the community, including contributing $270,000 to support partnership efforts. It will also pay $25,000 in damages to the National Community Reinvestment Coalition. First Tennessee denied any wrongdoing in this matter.
The Toyota Motor Credit consent orders are available at: http://files.consumerfinance.gov/f/201602_cfpb_consent-order-toyota-motor-credit-corporation.pdf and http://www.justice.gov/opa/file/818481/download/.
The First Tennessee agreement is available at: http://portal.hud.gov/hudportal/documents/huddoc?id=15NCRC-v-FirstTennBank.pdf.