Rhinebeck Bank reaches auto-lending settlement with New York regulators

Rhinebeck Bank's indirect auto lending policies violated New York State's fair-lending law, the state department of financial services said Thursday. The bank agreed to a settlement that includes a $950,000 fine and restitution to affected customers.

The bank's "specific policies and practices allowed automobile dealers to markup a consumer's interest rate … which resulted in a disparate impact on the basis of race and national origin," the New York State Department of Financial Services said in a consent order outlining the settlement.

During the periods in question, Black borrowers were charged 31-39 basis points more in markups than non-Hispanic white borrowers, according to the consent order. Hispanic borrowers paid 21-33 basis points more, and Asian borrowers paid approximately 15 basis points more.

Christopher Goodney/Bloomberg

The regulator said it found no evidence of intentional discrimination by Rhinebeck or its employees.

Rhinebeck, headquartered in New York's Hudson Valley, counted almost $1.3 billion of assets at the end of the second quarter. The bank said it does not agree with the department's findings.

"Dealers, not banks, determine how much markup to charge customers," Rhinebeck CEO Michael J. Quinn said in a statement. "Banks do not know the racial or ethnic characteristics of borrowers before a loan is originated."

In addition to the monetary penalty, Rhinebeck agreed to provide impacted borrowers with restitution. Eligible borrowers are those who lived in New York at the time of their automobile purchase, identify as Black, Hispanic or Asian and paid above the average markup paid by non-Hispanic white borrowers between Jan. 1, 2017 and March 31, 2022. The average customer refund is $133, Quinn said. 

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The bank has fully reserved for the settlement cost, which it expects to have no further impact on earnings. 

Under Superintendent Adrienne Harris, the New York State Department of Financial Services has promised to focus more on kitchen-table issues that affect consumers. Earlier this year, the department fined a life insurance company $10 million for failing to pay benefits to the rightful beneficiaries. 

"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," Harris said Thursday in a statement.