Friday, November 27, 2015
If you want to know why companies settle with the government, even when they aren't guilty of anything, look no further than Ally Financial LLC's $98 million "no admit or deny" settlement with the Consumer Financial Protection Bureau (CFPB) over alleged racial bias in auto lending. As Wednesday's Wall Street Journal reports here, the CFPB chose questionable statistical methods, had questionable legal authority, and used the threat of unfavorable action by the Federal Reserve and the FDIC in a wholly separate matter, to coerce a settlement. Ally was eager to receive approval from the Fed and FDIC to convert to holding company status, in order to avoid having to shed some of its business units. The Fed was only too happy to oblige CFPB in its bullying tactics. As an internal CFPB memo makes clear, a Fed finding of improper discrimination would "most likely result in the denial of holding company status," but the Fed "also indicated that if Ally takes prompt and corrective action, it would consider such a factor in its determination." The House Financial Services Committee Report, Unsafe at any Bureaucracy, carefully documents CFPB's sordid tactics . Incredibly, CFPB referred the matter to DOJ. This kind of stuff happens, and dictates business litigation strategy with the government, quite often. So, when people complain that the failure to prosecute corporate insiders is inevitably suspicious in light of large civil settlements, I always want to know the industry, the company and other important details.