House Financial Services Committee Chairman Jeb Hensarling is trying to stop $80 million in payments given to borrowers as part of a controversial auto loan discrimination settlement with Ally Financial until regulators verify the checks were actually given to minorities.

The Texas Republican's panel released a second report Wednesday that alleged the Consumer Financial Protection Bureau willfully overestimated consumer harm in the 2013 Ally case.

The report, which quoted internal agency documents that were initially publicized last year, showed disagreements between the CFPB and the Department of Justice about how to identify affected minority borrowers since consumers do not have to reveal their race on auto loan applications. The CFPB ultimately opted to cast a wider net of potential claimants without requiring them to verify their ethnicity.

But Hensarling said that the agencies must "immediately suspend" distributing the proceeds until borrowers who were contacted can verify they are eligible for settlement funds.

"To do otherwise invites fraud on a massive scale," Hensarling said in a letter to Attorney General Loretta Lynch. "It defies logic for federal agencies to distribute settlement funds without first verifying the eligibility of prospective recipients, particularly when the bureau's case is premised upon a flawed statistical analysis, as conclusively demonstrated in the staff reports."

The committee released its first report in November. That report harshly criticized the CFPB's method for citing indirect auto lenders for unintentional discrimination, a legal theory called disparate impact, based on the price gap it allows partnering dealers to mark up the interest rate on a loan.

The report released Wednesday and accompanying documents showed that the CFPB was worried its method would result in some white borrowers receiving checks, and that the bureau debated with the Justice Department over how to identify borrowers.

"Once it has secured settlement proceeds, the bureau employs a remuneration process designed to achieve political ends notwithstanding its acknowledgement that funds will be distributed to ineligible recipients," the report said. "In other words, bureau employees acknowledged that generating 235,000 alleged victims in the Ally case, as Director [Richard] Cordray announced, would necessarily result in the payment of settlement funds to white borrowers."

Documents show the CFPB weighed several options on how to identify and cut checks to borrowers, including one that "the DOJ is firmly against." It ultimately decided to combine several approaches to appease both the Justice Department and its own viewpoint.

The combined approach said that borrowers with a high probability of being a minority were notified that they would receive a check unless they chose to "opt out" of the settlement. Those with a lower probability of being a minority received a notice to "opt in" for a settlement check.

But Republicans took issue with the opt-in form for its lack of verification for claimants who said they were members of a minority group.

"Customers returning the participation form are not required to supply any kind of oath or affirmation, and the form contains no warnings about perjury or penalties for misrepresenting one's race," the report said. "The opt-in form does not even require borrowers to indicate the protected minority race/ethnicity to which they belong. Borrowers need only sign their name under a statement indicating they are a member of any of the protected races/ethnicities."

When the committee asked the CFPB why it did not verify race, Rebecca Gelfond, the agency's assistant director of the Office of Fair Lending, responded, "We are not in a position to question self-identification of race."

CFPB spokesman Sam Gilford said the agency was reviewing the report.

"The CFPB's goal has been, and continues to be, the elimination of illegal discrimination," he said in an emailed statement. "Discrimination in auto lending has resulted in minority borrowers being unfairly charged higher interest rates on their loans. We will continue to fairly and consistently enforce the Equal Credit Opportunity Act to ensure borrowers harmed by discrimination receive the relief they deserve."

The Ally claims administrator ultimately sent out 218,457 opt-in forms to potential claimants, only 47.9% were returned, according to the report. In total, 419,669 letters were sent out, almost double the CFPB's initial estimate of 235,000 affected minority borrowers. Had the CFPB gone with the Justice Department's suggested threshold method, only 36,000 to 143,000 consumers would have been eligible for a check, the report said.

"However, Director Cordray had claimed publicly that Ally had harmed 235,000 minority borrowers; accordingly, adopting DOJ's plan would expose that estimate as wildly inflated," the report said. "In other words, unless the bureau decided to send remuneration checks to a large number of consumers based on nothing more than its surmise that the consumers belonged to a protected minority class, bureau employees recognized that the bureau could not hope to generate enough claimants to exhaust the settlement fund."

The CFPB has told lawmakers that it expects all of the $80 million settlement to be distributed and consumers should receive checks between $100 and $520 this month. Still, the panel has called Patrice Ficklin, the CFPB's assistant director in the fair-lending office, to testify before the Financial Services Subcommittee on Oversight and Investigation in February on the matter.

"Bureau officials knew that in order to generate a sufficient number of check recipients, they would have to remove a number of safeguards from the claims process, including confirming the race of claimants alleged to have been discriminated against, thus making it more likely that non-minority consumers would receive remuneration," the report said. "Sending remuneration checks to white borrowers as a means of remedying alleged discrimination against African-American, Hispanic, and Asian borrowers is an unorthodox approach to fair lending enforcement, to say the least, and suggests significant problems with the bureau's actions against vehicle finance companies."

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