Honda Finance Announces $24 Million Settlement For Overcharging Minority Customers

This was taken directly from the Consumer Financial Protection Bureau:


The Consumer Financial Protection Bureau (CFPB) and Department of Justice (DOJ) resolved an action with American Honda Finance Corporation that will put new measures in place to address discretionary auto loan pricing and compensation practices. 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. As part of today’s order, Honda will change its pricing and compensation system to substantially reduce dealer discretion and minimize the risks of discrimination, and will pay $24 million in restitution to affected borrowers.

“The CFPB is committed to creating a fair marketplace for all consumers, and other auto lenders should take note of today’s action,” said CFPB Director Richard Cordray. “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.”

Latest Study: Negotiation Doesn’t Help African Americans and Latinos on Dealer-Financed Car Loans

According to a recent study released by the Center for Responsible Lending, African Americans and Latinos pay higher interest rates on dealer-financed car loans than white buyers, even though people of color report more attempts to negotiate a better deal. Thirty-nine percent of Latinos and 32% of African Americans reported attempts to negotiate their interest rate, compared to only 22% of white respondents - yet buyers of color received higher interest rates.

The report, "Non-Negotiable: Negotiation Doesn't Help African Americans and Latinos on Dealer-Financed Car Loans," is based on information collected from 946 consumers in a detailed telephone survey conducted in October 2012. The results are consistent with longstanding findings of racial and ethnic discrimination in the auto lending industry.

While several studies have found pricing disparities on car loans even after controlling for credit risk, this is the first research on the impact of shopping habits, information received from car dealers, and the disparities related to add-on products, such as high-priced insurance and warranties. The survey showed that the amount of comparison shopping for car loans was similar among all racial and ethnic groups, with African Americans and Latinos engaging in comparison shopping slightly less. Car buyers of color were much more likely to report receiving misleading information about their car loan, and they were nearly twice as white consumers to be sold multiple add-on products.

Bank Settles $27M Suit For Misleading Auto Loans, 4 Ways to Steer Clear of Predatory Practices

According to the Huffington Post,  JPMorgan Chase recently agreed to pay a $2 million fine to the Office of the Comptroller of the Currency that regulates banks and distribute $25 million to customers who were misled by auto loan officers to purchase additional credit protection.

From January 2008 through May 2009, JPMorgan Chase sales staff steered consumers into purchasing credit protection, which drove up their monthly notes. The Office of the Controller of Currency alleged that the bank's sales staff used high-pressure tactics such as using a script provided by the bank to include rebuttals for when customers balked at purchasing credit insurance.

The bank would usually make their money off of the credit protection when unemployment or death occurred with the borrower.

JPMorgan Chase is not the only institution that's guilty of such deceptive practices. They just happened to get caught. Ed Voyles Honda in Atlanta refused to give a customer with excellent credit a low-interest rate that was being offered by the automaker. The finance manager made more money off of the deal by stretching out the loan and offering a higher rate. Now while this gave the customer a lower monthly payment, consequently, it drove up the overall cost of the loan by approximately $800.

And Delta Credit Union based in Atlanta allowed a customer with great credit to skip close to a year's worth payments, which are also known as payment holidays, over the seven-year term of the loan. Thus, now that the customer is ready to trade-in their that gas-guzzling SUV for a fuel-friendly crossover, a car-based utility vehicle, they find that they are upside-down, owing more than what the vehicle is worth, by close to $20,000. While you can't really faught the credit union, the customer should have been warned of the risk of the payment holidays and the seven-year loan. (Read  "A New Trend in Auto Financing: Car Mortgages?")

So as you can see, banks and credit unions may not actually be working in your best interest. In order to avoid being steered in the wrong directions, here's what we recommend: