Adirondack and Chemung banks resolve discriminatory lending rate investigation


ALBANY – Two banks have settled a state inquiry into the higher interest rates charged to minority auto buyers by auto dealers who had partnered with the banks.

Saratoga Springs-based Adirondack Trust Company will pay the state a fine of $ 275,000 and donate $ 50,000 to community development organizations focused on underserved groups.

The Elmira-based Chemung Canal Trust Company will pay the state $ 375,000.

Both banks will have to make an effort to find non-white auto buyers who have been charged higher interest rates on average than white buyers and must return the higher amount of interest charged. Adirondack estimated it would cost him around $ 55,000.

The State Department of Financial Services announced the settlement on Tuesday.

Auto buyers who cannot pay cash can obtain direct financing – arranging financing themselves directly with a bank, credit union, or other lender – or indirect financing, arranged on their behalf by the dealership. automobile with a lender.

The investigation and settlement are based on indirect auto loans by the two banks. The dealers they partnered with gathered the relevant information from the potential buyer and the bank returned a minimum interest rate, or buy-in rate, at which it would take a loan.

The dealer would then charge the borrower a higher rate. The difference between the bank’s buy rate and the rate charged to the buyer is called the dealer’s mark-up and forms the basis of the dealer’s compensation.

The buyer’s race and ethnicity may be obvious to the financial agent sitting with them at the dealership, but these details are not recorded in the loan application details forwarded to the bank.

The DFS found that the dealer mark-up in Adirondack loans from January 1, 2016 to October 31, 2017 was 0.59 percentage points higher for black borrowers than for white borrowers, 0.46 points higher for borrowers. Hispanic and 0.30 point for Asian borrowers.

He said the dealer’s mark-up was 0.20 to 0.27 points higher for Hispanic borrowers in Chemung than for white borrowers from 2016 to 2020.

He said the differences were not based on the creditworthiness of the respective borrowers or any other objective criteria.

DFS used a complex proxy model that takes into account a borrower’s address and last name to assign borrowers a probable run within the time frame involved in the investigation.

In a statement Tuesday, Adirondack said, “We are delighted to resolve this matter. We abhor and condemn discrimination based on race, sex or gender identity, beliefs, sexual orientation, disability, nationality, marital or family status, age and military status. We are committed to providing equal access to financial services for all of our customers and communities. “

Chemung said:

“While we are extremely disappointed with the results of the findings, we are happy to resolve these issues and put the issues behind us. The circumstances which led to this are totally unacceptable and do not represent the long and dedicated commitment of Chemung Canal Trust Company to its communities.

DFS noted that the banks themselves do not know the race of their borrowers. He said he found no evidence of intentional discrimination on the part of the bank or its employees, but the result was nonetheless discriminatory and violated New York’s Fair Loans Act and of the Federal Law on Equal Credit Opportunities.

DFS also found that Adirondack Bank did not maintain adequate controls to investigate and uncover discrimination.

DFS noted that the two banks cooperated in a substantial and timely manner with the investigation. He said both banks have “demonstrated an ongoing interest and commitment to addressing systemic racism in the communities” they serve.

Adirondack voluntarily ended its indirect auto loan program on November 1, 2017.

Chemung has agreed to take steps to ensure that its indirect lending program complies with federal and state fair loan laws.

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