The New York Department of Financial Services (NYDFS) entered into a consent order with a state bank based on alleged discrimination in auto loan pricing where the alleged discriminatory acts were committed by the car dealerships with which the bank partnered.
According to the consent order, the bank worked with car dealerships to provide funding for auto loans. When the dealers had customers who wanted to finance an auto purchase, the dealers would send 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 dealer. The bank did not meet or interact with the customers, and it did not receive any information on the customers’ race or national origin.
After the bank set the minimum interest rate at which it would buy the loan, the dealers could add a markup to the interest rate, up to certain limits. The dealers’ compensation from the bank in connection with a loan would be based on the difference between the bank’s minimum interest rate and the dealer’s markup rate.
NYDFS concluded that the markup amounts (which were decided solely by the dealers) were higher on average for black, Hispanic, and Asian borrowers than for similarly-situated white borrowers. NYDFS noted that it did not find evidence of any intentional discrimination on the part of the bank or its employees, and the bank never knew the race or national origin of the borrowers. However, NYDFS found that the bank’s policies and practices gave the car dealers discretion to markup consumers’ interest rates above the minimum rate at which the bank would buy the loan, and that resulted in a disparate impact on the basis of race and national origin. NYDFS further noted that the bank did not monitor these dealer markups for potential fair lending risk.
Based on the foregoing, NYDFS found that the bank violated New York’s credit non-discrimination statute. As part of the consent order, the bank agreed to pay a $950,000 civil money penalty and to set up a restitution program for affected borrowers.