Honda's finance arm agreed to pay $25 million to settle allegations it charged some minority buyers higher interest rates, claiming they were higher credit risks.
Honda will pay $25 million to settle allegations its U.S. financing arm overcharged minority car buyers, federal officials announced.
The maker was one of several who allegedly allowed dealers to steer minority customers into loans that carried higher interest rates, supposedly due to higher credit risk. Dealers profited from that move because they received more money for generating those loans.
In a civil complaint, federal prosecutors alleged that, “Honda knew or had reason to know that its policy and practice of allowing dealers to mark up consumers’ interest rates created a substantial risk of discrimination.”
As part of the settlement, Honda U.S. financing subsidiary – the ninth-largest U.S. auto lender – will offer $24 million to help relieve the higher borrowing costs incurred by African-American, Hispanic and Asian and Pacific Islander buyers who were saddled with higher loan rates than whites. The money will be distributed without consideration of their actual credit records, according to the Consumer Financial Protection Bureau and Department of Justice.
It was determined that minority buyers of vehicles sold by Honda and its luxury arm Acura were paying anywhere from $150 to $250 more, over the life of their loans, than whites.
(Honda adds another 4.5 million vehicles to its Takata airbag recall list. For more, Click Here.)
An additional $1 million from Honda will be used to fund a consumer education program.
“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, head of the Department of Justice’s Civil Rights Division.
Government officials suggested that other automotive lenders are now on notice to revise their own practices.
(Click Here for details about Honda’s new CEO’s plans for a turnaround.)
But not everyone was pleased with the news. Groups representing the nation’s automobile dealers insisted the settlement will stifle competition and actually result in higher costs. According to the National Automobile Dealers Association, which represents more than 16,000 of the nation’s new vehicle franchisees, the result could be as much as 1% higher interest rates for buyers.
“There’s no getting around the fact that this enforcement action is going to reduce the savings consumers depend on when financing a new vehicle,” echoed Brad Hoffman, chairman of the smaller American International Automobile Dealers Association.
The dealer groups essentially contend that rather than unfairly penalizing minorities, lenders like American Honda Finance were simply rewarding buyers with good credit.
(Why did Japanese automakers suddenly take a tumble in auto quality? Click Here to find out.)
How the settlement will impact the auto business remains to be seen. So-called sub-prime loans have become a critical tool for auto retailers looking to close deals with buyers who might not have the best credit – and dealers, in general, now often make as much or money on loans and other financial transactions as they do on the sale of the car itself. Manufacturers, meanwhile, often subsidize loans, especially for good credit risk customers as an alternative to traditional rebates.
It’s just disgraceful how the finance industry/banks have bilked the public out of billions of dollars annually via discrimination and corruption. For those who haven’t paid attention pretty much all of Wall Street and many European banks have been convicted of all sorts of criminal acts from laundering money (from criminal entities), fixing loan rates or industry references that adjustable rate loans are based on and much more.
As those who complain about the Honda fine state – ALL consumers will pay for the crime of Honda or any other financial institution. At least a few CEOs or execs have actually been sent to prison, but damn few IMO. There are literally hundreds if not thousands of white collar executive criminals that should be in prison right now for these and other crimes but they will never spend a day behind bars because the U.S. like many country’s has a double standard for those of means vs. the common man.
Another day, another conviction for discrimination that no one will be held accountable for.
Big Companies get caught doing terrible things almost daily. What’s the final punishment? A dollar penalty they get to write off. Quit fining these bozos! Like Harry S. Truman said ” The buck stops here.” Put the President in jail for a year or two. I guarantee when he gets out he will make sure everyone obeys the law. In Japan, disgraced bigshots used to commit suicide, why did they stop doing that?
Wow..you guys work at an auto website and havent
a clue why the Honda scandel actually happened or how,do you? You might pick up a device we call a telephone and speak to a Car Guy for the research
your staff apparently missed. Here’s why.
Business office managers get paid commission for selling money at a higher price. If the factory
has a low interest rate on offer they won’t be paying any bonus money to the B.O.M.Why?
Simply because they don’t need to.
Expensive finance rates are a tough sell and it takes a smooth guy in the box to do it. The car factories alk know this, as you should I might add..
So: When dealer principals start paying a salary to their F & I guys instead of commission then all consumers not just minorities, can benefit.
I don’t think Honda US or Canada is to blame for
the code of silence. The pay structure of a auto dealership has not changed in the 35 years I worked
as a salesperson nor was it different in my grandfathers day, who was a Ford dealer in Ohio.
Having a business manager on unlimited commission is
rather new. Don’t blame the sales people for high interest rates, many sales people get a flat $150.00
while the F&I guy makes $1000.00 on the same deal.
I will let you do the math on a store that rolls big numbers like 150-250 cars a month new and used.
There is a motorcycle dealer in the Vancouver BC
metro area that earns 250-300K per year. Oh, no discrimination up here folks..everybody gets screwed.
Try to dig a little deeper next time for your readers and you might have a scoop rather than just a reprint of news available anywhere.
Best Regards from an American in Canada