American Honda Finance Corporation was accused by the Justice Department, of charging higher interest rates on auto loans from black, Hispanic and Asian car buyers. They will be compensating by paying $24 million to a fund for car buyers who were overcharged but, no civil penalty, and they will also pay another $1 million for a consumer-education effort. This is a part of the goal of the federal officials to alter lending practices by car companies.
American Honda Finance states that they do not agree with the Consumer Financial Protection Bureau and the Justice Department when it comes to the methodology used to make determinations about lending practices but, they however, they do share similar beliefs of the importance of fair lending.
Vanita Gupta, head of the Justice Department’s civil-rights division said that they are looking at the auto-lending market as a whole, and discriminatory practices in auto loans is a consistently increasing problem, while declining to identify specific companies. This is the first settlement where an auto lender has agreed to alter its lending practices, according to the federal officers who hope that this will become a precedent for other car companies.
According to Ms.Gupta, Honda’s new lending compensation system balances fair compensation for dealers and fair lending for consumers. She also hopes Honda’s leadership will encourage the rest of the industry to constrain dealer markups to address discriminatory pricing.
The government has been snooping around the auto-lending market for several years. To settle an investigation of its lending practices, in 2013 it struck a $98 million deal with Ally Financial Inc., the former consumer-credit unit of General Motors Co. Ally didn’t admit wrongdoing under the agreement, which called for monitoring of lending practices but didn’t require changes.
Bill Fox, chairman of the National Automobile Dealers Association believes the Honda settlement will restrict the ability of thousands of consumers to negotiate lower interest rates with their local auto dealership. This enforcement action artificially constrains the right of consumers to benefit from interest rate reductions of up to 1% of the APR on their next auto loan.
As a typical auto loan lasts for five years; federal officials say that over the course of such loans, the average black purchaser ended up paying over $250 more than a similarly-situated white customer. The average Hispanic victim ended up paying $200 more, and the average Asian victim ended up paying $150 more.
Honda feels, this $25 million settlement is the proof of the company’s commitment to work together to take part in the solution. It is the proof of the dedication to form the path forward that best supports our Honda and Acura customers and dealers with clear and convenient financing options.
