Auto Insurance

DFS Superintendent Harris Announces Settlement with Rhinebeck Bank to Resolve Fair Lending Violations Concerning Auto Loans

DFS Superintendent Adrienne A. Harris Announces Settlement with Rhinebeck Bank to Resolve Fair Lending Violations Concerning Auto Loans

DFS Investigation Uncovered Discriminatory Dealer Mark-Ups in Bank’s Indirect Automobile Lending Programs and Secured Restitution for Impacted Borrowers

Superintendent of Financial Services Adrienne A. Harris announced today that Rhinebeck Bank (“Rhinebeck”), a New York State-licensed banking institution based in Dutchess County, will pay a penalty of $950,000 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 and will provide restitution to eligible impacted borrowers. The Department’s investigation found that Rhinebeck’s practices resulted in minority borrowers paying higher interest rates than non-Hispanic white borrowers for their automobile loans, without regard to their creditworthiness.

“Today’s settlement with Rhinebeck Bank demonstrates the Department’s commitment to ensuring access to financial services, on equitable terms, for all consumers across New York State,” said Superintendent Harris. “DFS continues working to ensure that New Yorkers have transparent and fair access to financial products, combatting the historical inequities faced by individuals of color today.”

As part of its agreement with the Department, in addition to paying a $950,000 penalty to New York State, Rhinebeck agreed to provide restitution to eligible impacted borrowers dating back to January 1, 2017. The bank also agreed to undertake significant remediation efforts to increase its monitoring of the dealers participating in its indirect automobile lending program to prevent discriminatory dealer markups in the future.

Rhinebeck also will provide instructions, to be posted in its website, as to how borrowers who believe they may have been impacted by discriminatory dealer markups can make a claim for restitution.

The settlement with Rhinebeck follows prior settlements entered into by the Department in 2021 with Chemung Canal Trust Company and Adirondack Trust Company for similar conduct. As with those settlements, the Department’s investigation found that Rhinebeck failed to effectively monitor automobile dealers from which Rhinebeck agreed to purchase loans, thereby allowing the dealers to charge members of protected classes more in discretionary dealer markups than borrowers identified as non-Hispanic White. The Department found that these disparities were not based on creditworthiness.

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 Rhinebeck. 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 known as a Buy Rate by which they will immediately purchase the loan from the dealer. 

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 Rhinebeck consent orders, visit the DFS website.

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