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Car Dealer Interest Rate Markups Lead to Higher Interest Rates, Not Discounts

Friday, November 13, 2015

A new policy brief from the Center for Responsible Lending (CRL) shows that most consumers would pay lower interest rates if car dealers stopped getting paid through increases in the interest rate. According to industry data, as many as 70% of borrowers would pay a lower interest rate if the car lending industry shifted to a flat fee compensation model. Borrowers of color would likely see the most savings.

Car dealers have the ability to increase the interest rate on car loans above that for which the borrower qualifies, and keeps some or all of the difference as compensation. Dealer interest rate markup has a lengthy history of unfair and discriminatory impact. The Consumer Financial Protection Bureau (CFPB) and the Department of Justice (DOJ) have recently entered into four settlements with lenders totaling more than $150 million in restitution and fines to settle claims of discrimination. Other private settlements have netted an additional $100 million consumers.

The industry is working furiously to derail the CFPB's work. In particular, the industry is working to pass H.R. 1737. This bill would require the CFPB to retract its March 2013 guidance on discrimination in car lending.

"Our policy brief shows that car consumers would do better if the current unfair car lending system changes," said Chris Kukla, Senior Vice President of the Center for Responsible Lending. "We should be supporting the CFPB's efforts, not passing bills like H.R. 1737 to put barriers in their way."

This bill could be voted on in the U.S. House of Representatives as early as next week.

For more information, or to arrange an interview with a CRL spokesperson on this issue, please contact Chris Kukla at or 919-308-0770.