U.S. Justice Dept questions JPMorgan over auto lending practices

The largest U.S. bank said in an annual filing with the U.S. Securities and Exchange Commission that the Justice Department is looking at whether auto loans made by car dealerships to borrowers of different races and ethnicities may have been marked up.

JPMorgan (JPM) is the fifth-largest U.S. auto lender behind Ally Financial Inc, Wells Fargo & Co, Toyota Motor Corp’s in-house lending arm and Capital One Financial Corp, according to Experian Automotive.

Ally settled an investigation into similar discriminatory lending practices with the Justice Department and the U.S. Consumer Financial Protection Bureau in December 2013 for $98 million. Toyota Motor Credit Corp said in December that it faced an enforcement action from U.S. authorities over whether auto loans it offered through dealerships violated fair lending laws.

The Consumer Financial Protection Bureau “has focused significant resources on rooting out discrimination in indirect auto lending,” Director Richard Cordray said on Monday, adding that lenders have reimbursed 425,000 consumers who faced discrimination in loans approximately $136 million.

Lenders and car dealers have criticized the methodology the U.S. government has used previously to determine whether they exhibited bias against minority borrowers. In a November study, the American Financial Services Association, an industry group, found that the statistical methods that enforcement officials used to determine whether such borrowers were overcharged had high error rates.

The government’s calculations “may create the appearance of differential pricing…when none exists,” AFSA and four other industry groups wrote in a Feb 18 letter.

The examinations into auto loan bias were unrelated to the Justice Department’s investigation into subprime auto lending, an area that federal prosecutors are focusing on more as their probes into mortgage bonds come to a close.