Honda is in big trouble with the U.S. government for allegedly discriminating against minorities by marking up interest rates on auto loans.
The Consumer Financial Protection Bureau (CFPB) announced Tuesday that Honda had been violating fair lending laws, but the company is now taking actions to correct any unfair practices and compensate anyone who was affected them.
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Honda’s discriminatory lending
Following an investigation into Honda’s lending activities that began in 2013, the federal government found that Honda’s financial services group, American Honda Finance Corporation (AHFC), had violated the Equal Credit Opportunity Act — a law that prohibits creditors from discriminating against borrowers based on characteristics like race and nation of origin.
Honda Finance, which is responsible for issuing loans to people who finance auto purchases through dealerships, had been overcharging black, Hispanic, Asian and Pacific Islander borrowers. According to the CFPB, minority borrowers were paying higher interest rates for auto loans than white borrowers — $150 to $250 more on average — without taking into account their creditworthiness. The company was apparently allowing dealers to mark up rates, which is what the CFPB says led to the discrimination.
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The company’s plan to fix it
Honda has agreed to pay $24 million to affected borrowers whose auto loans were financed by AHFC between January 2011 and July 2015.
As part of a resolution reached by the CFPB and the Department of Justice, Honda will also change its pricing and compensation process to reduce dealer discretion — an effort aimed at minimizing any possible discrimination. The company said it will soon begin capping dealers’ ability to mark up interest rates.
‘AHFC strongly opposes any form of discrimination, and we expect our dealers to uphold this principle as well,’ the company said in a statement released Tuesday. ‘We firmly believe that our lending practices have been fair and transparent.’
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