Feds settle with Honda in auto loan racial discrimination case

The Obama administration has reached a $24 million agreement with Japanese auto manufacturer Honda to settle claims the company discriminated against minority auto loan seekers. 

The Department of Justice and Consumer Financial Protection Bureau said Tuesday that Honda has agreed to make changes to its auto financing process after the company faced allegations that it charged minority car buyers higher interest rates on vehicle loans.  

“We commend Honda for its leadership in agreeing to impose lower caps on discretionary markups and for its commitment to treating all of its customers fairly without regard to race or national origin,” said Vanita Gupta, who is head of the Justice Department’s Civil Rights Division.  

{mosads}“We recognize that dealerships perform a valuable service in connecting customers with lenders and that they should be fairly compensated for that service,” Gupta continued. “We believe that Honda’s new compensation system balances fair compensation for dealers and fair lending for consumers.  We hope that Honda’s leadership will spur the rest of the industry to constrain dealer markup to address discriminatory pricing.”

The federal complaint that preceded Tuesday’s agreement alleged that Honda charged African-American car buyers an average of $250 extra over the course of a loan, while the company was accused of charging Hispanic buyers an average of $200 extra. Asian and Pacific Island buyers were charged an extra $150, according to the complaint.   

Under the agreement to close the case, Honda said it would limit the discretion its auto dealerships have in setting interest rates for potential auto buyers. The company also said it would pay $24 million to car customers who have complained about racial discrimination.  

The financial protection bureau said the settlement of the Honda case would set a precedent for other auto lenders. 

“The CFPB is committed to creating a fair marketplace for all consumers, and other auto lenders should take note of today’s action,” the agency’s Director Richard Cordray, said in a statement.  “Honda’s proactive decision to move to a new pricing and compensation system demonstrates industry leadership and represents a significant step towards protecting consumers from discrimination.”

Honda officials said, meanwhile, that the agreement with federal regulators “shows our commitment to work together to be part of the solution and to establish the path forward that best supports our Honda and Acura customers and dealers with clear and convenient financing options.

“[American Honda Finance Corporation] strongly opposes any form of discrimination, and we expect our dealers to uphold this principle as well,” the company said in a statement. We firmly believe that our lending practices have been fair and transparent.” 

Honda’s financing division steered clear of admitting the allegations against its lending practices were true, despite agreeing the settlement, however.  

“AHFC has a difference of opinion with the CFPB and the DOJ regarding the methodology used to make determinations about lending practices, but we nonetheless share a fundamental agreement in the importance of fair lending,” the company said. “In cooperation with the CFPB and the DOJ, AHFC will be working closely with our Honda and Acura dealers in proactively adjusting our pricing programs to continue to give our customers the ability to choose the loan that is best for supporting their purchase of Honda and Acura products.” 

Groups that lobby for auto dealers in Washington were more direct in their criticism of the Obama administration’s intervention in the car financing industry.  

“Today’s government-imposed order will hamstring the ability of thousands of consumers to negotiate lower interest rates with their local auto dealership,” National Automobile Dearlers Association Chairman Bill Fox said in a statement. “This enforcement action artificially constrains the right of consumers to benefit from interest rate reductions of up to 1% of the APR on their next auto loan.”

—Last updated at 8:00 p.m.