Via the New York Post, more from the annals of regulatory insanity:
The former CEO of Ally Financial Inc. says the Obama administration abused its power by holding the bank’s business hostage in order to coerce a record settlement of “trumped-up” racism charges and push profit-killing new regulations on the entire auto-lending industry. . . .
Michael A. Carpenter, who helmed Detroit-based Ally from 2009 to 2015, complained in an exclusive interview that Obama’s powerful consumer watchdog agency threatened to derail the bank’s efforts to obtain key regulatory approvals if it didn’t agree to settle the allegations out of court.
“To be strong-armed by a regulator was inappropriate to say the least,” he said. “They absolutely knew they had tremendous leverage over us.” [Emph. added.]
Do you recall the CFPB-Ally Financial saga? What a disgrace. The government accused the company of discriminating against minority auto borrowers on the basis of the “disparate impact” of its lending decisions: blacks were turned down more often and charged higher interest rates than whites, on average, and the CFPB took that as de facto evidence Ally was discriminating. Except that Ally didn’t even know the applicants’ race—there’s not even a box for it on the loan application—when it underwrote the loans, and that if you adjust the data for factors like FICO score and vehicle type, evidence of discrimination disappears. So, no, Ally wasn’t discriminating. But the company had a crucial regulatory issue in front of the FDIC, on which the head of the CFPB sits, and so had no choice but to settle; it agreed to pay $100 million in restitution to “wronged” borrowers. The results since then, as you can imagine, have been downright ludicrous. More from the Post:
[The] CFPB could never ID the alleged 235,000 Ally minority “victims” harmed by loan mark-ups. The auto industry does not report borrower race, so CFPB resorted to guessing race by last name and zip code, a so-called “proxy” method that’s wildly inaccurate and often misidentifies whites as black.
As a result, an estimated 20% of the settlement checks the government is now mailing out are actually going to whites.
So Ally is paying money to a bunch of white people a result racial discrimination against blacks by Ally that never happened in the first place. Fairness! But wait, it gets worse. The regulatory situation Ally now finds itself in has devolved from the merely unfair to the farcical:
In a preemptive strike against future prosecution, Ally has been randomly cutting refund checks to car borrowers on its own, outside the settlement, advising pleasantly surprised recipients a mistake may have been made in calculating their interest rate.
“We didn’t want that same problem again,” Carpenter said, “so we said to ourselves, what are we going to do to make sure we pass the (CFPB’s fair lending) test?”
In effect, the industry is now having to pay protection money to the government as a cost of doing business.
Thus Ally, as a result of its deal with the government, is cutting checks to random people for no reason. This is of course insane. Donald Trump says we’re being ruled by idiots. I’m not so sure. Based on what the government is putting Ally Financial through, he may be giving the people who run the country the benefit of the doubt.
What do you think? Let me know!