June 29, 2021
DFS Superintendent Lacewell Announces Settlements with Two Upstate Banks to Resolve Fair Lending Violations
DFS Investigation Uncovered Discriminatory Dealer Mark-Ups in Adirondack Trust Company’s and Chemung Canal Trust Company’s Indirect Automobile Lending Programs
Superintendent of Financial Services Linda A. Lacewell announced today that Adirondack Trust Company (“Adirondack Trust”) and Chemung Canal Trust Company (“Chemung Canal”) will pay $275,000 and $350,000 in penalties, respectively, to New York State for violating New York State’s fair lending law, New York Executive Law § 296-a while engaged in indirect automobile lending.
The Department’s investigation found that Adirondack Trust’s and Chemung Canal’s practices resulted in members of protected classes, namely race and/or ethnicity, paying higher interest rates than non-Hispanic white borrowers for their automobile loans, without regard to their creditworthiness.
“The Department is committed to ensuring that all individuals, regardless of race or ethnicity, are treated equally by lenders across New York State,” said Superintendent Lacewell. “Ensuring access to automobile loans on equitable terms is just one way in which the Department seeks to combat the inequities faced by individuals of color and to achieve economic justice.”
Automobile loans are the third-largest source of household debt in the United States, after mortgages and student loans. When consumers finance the purchase of an automobile, the dealer often facilitates indirect auto lending through a third party, such as Adirondack Trust or Chemung Canal. The automobile dealers collect prospective borrowers’ personal and financial information and submit applications to the banks on behalf of those borrowers. The banks then provide the automobile dealer with a specified, risk-based interest rate (“Buy Rate”) by which they will immediately purchase the loan from the dealer.
Adirondack Trust and Chemung Canal also permitted automobile dealers to charge a higher interest rate when they finalized the terms of the loans with the borrowers. The difference between the rate the consumer agrees to pay and the Buy Rate is known as the “Dealer Markup.” These Dealer Markups generate compensation for dealers while giving them discretion to charge consumers different interest rates without regard to objective, credit-related factors.
The Department’s investigation found that Adirondack Trust and Chemung Canal both failed to monitor automobile dealers that were charging members of protected classes, namely race and ethnicity, more in discretionary Dealer Markups than borrowers identified as non-Hispanic White. The Department found that these disparities were not based on creditworthiness.
Adirondack Trust voluntarily discontinued its indirect automobile lending program as of November 1, 2017. In addition to paying a $275,000 penalty to New York State, Adirondack Trust agreed to provide restitution to eligible impacted borrowers and make a $50,000 contribution to local community development organizations.
As part of its agreement with the Department, in addition to paying a $350,000 penalty to New York State, Chemung Canal agreed to provide restitution to eligible impacted borrowers and undertake remediation efforts designed to increase Chemung’s monitoring of the dealers participating in its indirect automobile lending program and prevent discriminatory Dealer Markups in the future.
Both banks will also provide instructions, to be posted on their respective websites, as to how borrowers who believe they may have been impacted by a discriminatory Dealer Markup can make a claim for restitution.
The Department remains committed to rooting out discriminatory lending practices in the financial services industry and ensuring that all New York consumers are treated equitably.
To review the Adirondack Trust consent order, visit the DFS website.
To review the Chemung Canal consent order, visit the DFS website.