The Consumer Financial Protection Bureau (CFPB) has made it a priority “to pursue lenders whose practices discriminate against consumers.” In 2013, the CFPB and Department of Justice (DOJ) ordered Ally Bank to pay $98 million in fines for alleged discrimination against minority car owners. The CFPB-DOJ investigation concluded that Ally illegally charged African-American, Hispanic, and Asian and Pacific Islander borrowers higher markups for their auto loans than their white counterparts.

Or did it?

According to Corporate Counsel, “The CFPB would likely have had difficulty proving disparate impact on Ally’s customer base because the methodology it used was, by its own admission, flawed.” The CFPB’s assistant director, Patrice Ficklin, admitted “that our proxy [methodology] is less accurate in identifying the race/ethnicity of particular individuals than some proprietary proxy methods that use nonpublic data.” She even suggested that revealing the CFPB’s methodology in full would leave the agency open to calls of “racial profiling and junk science.” Corporate Counsel has more:

“Despite apparent known alternatives, the CFPB chose to rely upon outdated census data that attempts to determine whether a borrower is a minority by looking at surnames, geographic location or a combination of both.


According to the CFPB’s report on using publicly available information to proxy for unidentified race and ethnicity, the CFPB’s methodology overestimates the number of people categorized as ethnic, including a 20 percent overestimation of African-Americans.”

In other words, the CFPB’s allegations of racial discrimination—and $98 million fine—were built on faulty grounds. The agency never fails to disappoint.