Honda’s finance arm to pay $24M over discriminatory pricing

Honda‘s finance arm to pay $24M over discriminatory pricing

Honda’s American finance arm has reached a settlement with the Consumer Financial Protection Bureau over allegations of discriminatory loan practices.

The company has agreed to establish a $24 million fund that will be used to compensate customers that were identified by CFPB and Department of Justice investigations.

Government officials have warned of widespread discrimination against minority buyers, many of whom have allegedly been quoted much higher interest rates than other potential buyers with similar qualifications. Persuading a customer to sign a loan with an inflated “dealer markup” rate is not itself illegal, however the CFPB claims minorities are disproportionately targeted by such schemes.

“Honda’s past practices resulted in thousands of African-American, Hispanic, and Asian and Pacific Islander borrowers paying higher interest rates than white borrowers for their auto loans, without regard to their creditworthiness,” the CFPB said in a statement.

American Honda Finance Corporation is not the first automotive lender to be targeted in the CFPB and DoJ crackdown campaign. Ally Financial, formerly General Motors’ captive lending arm, agreed to a $98 million settlement in 2013, while Toyota Motor Credit faced similar accusations.

Aside from the compensation fund, AHFC has promised to lower dealers’ discretionary markup cap from 2.25 percent to a maximum of 1.25 percent above the ‘buy’ rate, theoretically limiting pricing disparities. The company also has the option of transitioning to a compensation system that removes dealer discretion altogether.

“AHFC has a difference of opinion with the CFPB and the DOJ regarding the methodology used to make determinations about lending practices,” the company said in a statement. “But we nonetheless share a fundamental agreement in the importance of fair lending.”

The CFPB decided not to assess additional penalties, citing Honda’s “responsible conduct” and “proactive steps” to address the issue.

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