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

November 12, 2015
Auto Loans
Policy & Legislation

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.