WASHINGTON (12/26/13)--The Federal Reserve has approved Ally Financial Inc.'s application to change its regulatory status.
Ally said Monday that the decision will allow it to become a financial holding company and shed its current status as a bank holding company. The Fed's ruling means that the publicly owned car loan provider can continue offering insurance products and car sales through its SmartAuction website (Bloomberg Dec. 23).
Formerly the in-house lender for General Motors, Ally's bank holding status was approved in December 2008, allowing it to receive $17.2 billion in bailout funds through the Treasury Department's Troubled Asset Relief Program.
Ally had a December 2010 deadline to align its activities with its regulatory status. The Fed granted to company three extensions--the maximum permitted by the Fed, according to Bloomberg--pushing the deadline to the end of 2013. The company had said it wouldn't apply until it met regulatory standards. It said Monday that it applied to change its status earlier this month (The Wall Street Journal Dec.23).
The federal government still owns 64% of the company--the third biggest auto lender in the U.S. by market share.
Last week, Ally announced that it agreed to a $98 million settlement with the Consumer Financial Protection Bureau over claims that it discriminated against non-white borrowers. The company agreed to pay $80 million in compensation to victims and $18 million to the CFPB civil penalty fund (The New York Times Dec. 20).
The case arose from alleged discriminatory markup policies employed by the company between April 2011 and December 2013. The federal agency claimed that 235,000 African-American, Hispanic, and Asian and Pacific Islander borrowers were impacted (News Now Dec. 23).
According to federal regulators, Ally permitted auto dealers to charge consumers interest above its established rate. The firm then allegedly paid dealers with revenue obtained through markups, and, failed to monitor whether or not illegal discrimination was occurring.
The CFPB, in conjunction with the Department of Justice, found that African-American borrowers paid $300 more over the lifetime of loans than non-Hispanic whites. The agencies also found that Hispanic and Asian/Pacific Islander borrowers each paid $200 more than whites over the lifetime of loans. The study accounted for credit status.
Federal regulators called on Ally to halt its practices, establish a compliance committee and regularly report to the CFPB and DOJ on its adherence to non-discriminatory lending laws. Ally agreed to pay the fines but claimed it didn't agree with the CFPB's conclusions.