When the CFPB extracts a financial settlement from companies accused of financial wrongdoing, generally that money is supposed to be paid to the “victims” of that company’s practices. But it’s been more than a year since Ally Financial paid $80 million in damages to the agency for alleged discrimination in lending and not a single victim has been identified or paid.
Perhaps the CFPB’s foot-dragging has something to do with fact that a recent study found the agency’s method for estimating when auto dealers offer different interest rates to different customers grossly overestimates the number of minority borrowers. As the Wall Street Journal’s editorial board wrote: “The feds then claim discrimination in interest rates if the people they assume are minorities on average pay more than similar borrowers that the feds assume are white. This is not a joke.”
Ally didn’t actually admit to wrongdoing when it paid its settlement, but the CFPB estimates more than 235,000 minority borrowers were injured by Ally’s practices. How the CFPB came to that number isn’t entirely clear.
Marsha Coucharne, economist and author of the study exposing the CFPB’s flawed methodology, explained how difficult it is for the CFPB to actually identify victims. As the WSJ summarized: “if two borrowers each have a 50% chance of being black, they would count as one black borrower. In reality, both could be white, black, Asian, or members of any other racial category. But at the CFPB two fractions can add up to one victim.”
Considering the agency has no idea which borrowers are minorities, it’s unclear how the CFPB will go about distributing Ally’s settlement payment. These challenges and publicly exposed flaws, however, haven’t deterred the agency from pursuing similar actions against other financial institutions.