Latino and African-American car buyers still receive higher interest rates on loans financed through dealers, according to a new report, "Non-Negotiable: Negotiation Doesn’t Help African Americans and Latinos on Dealer-Financed Car Loans," by the Center for Responsible Lending (CRL).
The nonprofit organization gathered data through a telephone survey of 946 consumers who had made a purchase from an auto dealership in the last six years. About 22 percent of Caucasian car buyers negotiated their interest rate, compared to 39 percent of Latinos and 32 percent of African Americans. Minorities, however, tended to receive worse pricing and also received higher interest rates compared to Caucasian buyers who made no effort at all to negotiate. Blacks and Latinos also were nearly twice as likely to be sold multiple add-on products, the report found. These include warranties and insurance policies, often sold at the dealership’s financing office at an inflated cost.
The CRL released its report as the Consumer Financial Protection Bureau (CFPB) pledged to crack down on discriminatory practices involving dealership loans. Last year, the regulator confirmed that policies at some indirect auto lenders allow dealers to mark up lender-established buy rates and compensate dealers for those markups. The practice increases the risk of pricing disparities on prohibited bases. The Equal Credit Opportunity Act forbids a creditor from discriminating in a credit transaction because of race, color, religion, national origin, sex, marital status, or age.
In its report, CRL called for rules that prohibit dealer compensation that varies based on material terms of the loan, other than the principal balance. The organization also recommends that dealers be paid a flat fee by lenders for sourcing loans; that dealers be required to disclose the actual costs of every add-on product sold during the financing process; and that they disclose the cost of vehicles with and without add-on products. Regulation may also prohibit dealers from requiring that consumers purchase ancillary products in order to obtain financing.