Here at the office, my team and I jokingly refer to the Consumer Financial Protection Bureau (CFPB) as the gift that keeps on giving. Well, five days before Christmas, it joined the U.S. Department of Justice (DOJ) in delivering its biggest gift yet: the largest auto loan discrimination settlement in history. It was the third largest fair lending agreement ever, according to the DOJ’s press release.

Targeted was Ally Financial, which agreed to pay $80 million in restitution to victims of the alleged discrimination and $18 million to the CFPB’s Civil Penalty Fund. At issue was the finance source’s practice of allowing dealers to mark up interest rates on finance contracts, a policy that caused 100,000 African-Americans, 125,000 Hispanics and 10,000 Asian/Pacific Islanders to pay Ally higher interest rates than white car buyers, the two regulators charged.

Readers were outraged after we posted our online report on the settlement on Dec. 20. Some of them likened it to extortion, while others argued that Ally was in its right to charge buyers, regardless of their race, more if they had bad credit. Well, according to the settlement, the CFPB found greater racial and ethnic disparities for minority borrowers in the best credit tier, not the high-risk tiers as readers believed.

According to the 13-page complaint, the average African-American paid more than $300 more during their loan term, while the average Hispanic and Asian/Pacific Islander paid more than $200 more.

Once the settlement is approved, Ally will work with an independent administrator to identify the victims. Consumers who believed they were overcharged are also being asked to email or call a toll-free number to submit a claim. The bureau and the DOJ will also submit a list of car buyers they believe were overcharged. How the two agencies came up with that list is anyone’s guess, especially since finance sources are prohibited from collecting  race and ethnicity information from consumers.

“Regrettably, in today’s announced enforcement action, the CFPB continues to withhold the secret methodology it uses to determine whether discrimination has occurred,” read a statement from the National Automobile Dealers Association (NADA). “The public still does not know whether the bureau takes into account legitimate factors that can affect finance rates ...”

The CFPB began investigating Ally in September 2012, reviewing its lending practices between April 1, 2011, and March 31, 2012. The bureau then referred its findings to the DOJ, which conducted its own review of more than 1.21 million auto loans Ally funded during that period.

“As a result of Ally’s dealer markup and compensation policy and practice, and its lack of compliance monitoring,” the two agencies charged, “African-American, Hispanic and Asian/Pacific Islander borrowers paid higher interest rates … because of their race and national origin.”

The settlement does confirm that the bureau used U.S. Census data and the Bayesian Improved Surname Geocoding proxy method to determine race. The latter, the complaint states, “builds on the fact that many surnames in the United States are predominantly associated with a particular race or ethnicity ... and that many neighborhoods are segregated by race and ethnicity ...”

But as Andy Koblenz, the NADA’s general counsel, pointed out at our conference this past September, there’s a “huge part of the United States that’s not predominantly minority and nonminority.” He also said the CFPB would have to identify every possibly variable that might explain a pricing disparity.

Koblenz also said the CFPB would need the right metric to substantiate its discrimination claims, a piece of information excluded from the settlement agreement. It does point out, however, that Ally didn’t begin monitoring its portfolio for discrimination until March 2013 — the same month the CFPB warned finance sources they’d be on the hook for how their dealers mark up rates on finance contracts. And that’s why I think Ally didn’t fight this.

Some of our readers and the NADA were encouraged that the CFPB didn’t mandate that Ally eliminate rate participation. Why would it, especially when it can put the pressure on lenders to voluntarily do it themselves through the threat of enforcement actions? By the way, the CFPB gets to keep some of that $80 million if not enough victims are identified. I found that part interesting.

Then there was this comment: “So our government just fined itself $98 million.” Given that the federal government owns a 64% stake in Ally, I thought it was an interesting point.