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Ally Bank Settles Discrimination Suit

NEW YORK (TheStreet) - Bailed out auto lender Ally Bank has agreed on to settle with the Department of Justice and Consumer Financial Protection Bureau for discriminating against 235,000 minority borrowers between 2011 and 2013.

The bank, formerly the financial services arm of General Motors , will pay $80 million in damages to auto loan borrowers it misled and will pay a further $18 million in penalties. The fine represents the federal government's largest auto loan discrimination settlement in history, the CFPB and DoJ said in a Friday statement.

In their investigation, the CFPB and DoJ said that Ally's indirect lending program, with auto loans made through over 12,000 dealers across the country, unjustly hurt minority borrowers.

The bank did not ensure the pricing of its indirect auto loans was complying with fair lending laws, and as a result, federal regulators said that African-American, Asian and Pacific Islander, and Hispanic borrowers paid more for auto loans than did their non-Hispanic white counterparts with similar credit profiles.

In total, more than 235,000 minority borrowers paid higher interest rates for their auto loans between April 2011 and December 2013 because of Ally's discriminatory pricing system, regulators said. "Allowing these practices to continue would undermine all lenders that are making conscious efforts to follow the law," the CFPB and DoJ said.

As part of Friday settlement, Ally Bank agreed to establish a new compliance framework and work with the Bureau and the Department of Justice to monitor dealer markup in order to prevent future discrimination.

The settlement comes only weeks after the confirmation of CFPB director Richard Cordray. "Discrimination is a serious issue across every consumer credit market," Cordray said.

"We are returning $80 million to hard-working consumers who paid more for their cars or trucks based on their race or national origin. We look forward to working closely with the Justice Department and Ally to make sure this serious issue will be addressed appropriately in the years ahead as well," he added.

The settlement "will enable the Justice Department and the CFPB to work closely with Ally and others to prevent discriminatory practices in the future. And it will reinforce our determination to respond aggressively to discrimination in America's lending markets - wherever it is found," Attorney General Eric Holder added in a statement.

-- Written by Antoine Gara in New York

Follow @antoinegara