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Honda Finance Settles with CFPB, DOJ over Discriminatory Dealer Interest Rate Markups

Tuesday, July 14, 2015
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Today, the Consumer Financial Protection Bureau (CFPB) announced that it has reached a settlement with Honda Finance Corporation, which will result in the finance company paying $24 million in restitution to affected borrowers. Honda's past practices resulted in thousands of borrowers of color paying higher interest rates than white borrowers. The company will also change its lending practices to reduce discrimination, and submit to additional oversight to monitor for discriminatory impact.

CRL Senior Vice President Chris Kukla released the following statement:

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 and DOJ 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.

How dealer interest rate markups work 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. 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.

For more information, or to arrange an interview with a CRL spokesperson on this issue, please contact Andrew High at Andrew.High@responsiblelending.org or 919-313-8533.