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

For the vast majority of car loan borrowers, car dealer interest rate mark ups make their loans unnecessarily more expensive than if a flat fee compensation system were in place. This is the finding of a review of recent industry data by the Center for Responsible Lending.

In a recent study, Charles River Associates suggested that if the CFPB required lenders to pay dealers through a flat rate compensation system, the cost to borrowers would outweigh the benefits of eliminating discriminatory impact. However, a closer review of the data and the assumptions that Charles River Associates used to make that claim reveal that that if lenders did move to a flat rate compensation system borrowers would overwhelmingly benefit.