Honda Finance Will Pay Millions over Discriminatory Dealer Markups

The Consumer Financial Protection Bureau (CFPB) and the Department of Justice (DOJ) late Tuesday announced a settlement with Honda Finance Corporation over unfair borrowing practices for minority auto buyers.

The consumer agency says the settlement will result in (Honda) finance company paying $24 million in restitution to affected borrowers. It says that Honda Finance’s past practices resulted in thousands of borrowers of color paying higher interest rates than white borrowers.

As part of the settlement, the CFPB says that Honda will also have to change its lending practices to reduce discrimination and submit to oversight to monitor whether the car company is following the rules.

At issue: what’s referred to as “dealer markup or “dealer interest.”  According to CFPB this is how it works in practice: A lender approves a 5% interest rate loan for a consumer, but allows the dealer to add additional interest. The dealer adds 2%, tells the consumer they qualified for a loan at 7% and pockets most of the difference. The consumer never knows they qualified for a lower rate. CFPB said borrowers “of color” see their loans marked up more often and by a greater percentage than their white counterparts, even when credit scores and other variables are comparable.

Chris Kukla, the vice president for The Center for Responsible Lending says “the terms of the settlement are a step in the right direction toward eliminating dealer interest rate markup. However, dealer interest rate markups remain an unfair and hidden practice with continued potential for discrimination. CFPB must vigilantly monitor the data for discriminatory or unfair impact and act swiftly if and when that impact occurs. The only effective way to completely eliminate the discriminatory impact and the unfairness of hidden dealer interest rate markups is to end the practice altogether.”

The CFPB says Honda will be required to contact affected consumers as well as distribute funds back to those buyers.  The agency says Honda will have to provide regular reports and verification that victims have been compensated.


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