Honda Settles Lending-Discrimination Claims

     LOS ANGELES (CN) – Honda has agreed to limit dealer markups on auto loans to settle claims it discriminated against minority borrowers, the Justice Department said on Tuesday.
     Investigations into American Honda Finance Corporation’s lending practices by the Justice Department and the Consumer Financial Protection Bureau found that the lender discriminated against qualified black, Hispanic and Asian borrowers by charging them more in dealer markups than qualified white borrowers.
     Honda will pay $24 million in compensation to affected car buyers.
     The Justice Department called the settlement “groundbreaking” because Honda also agreed to limit dealers’ discretion to charge interest-rate markups on vehicle loans. The automaker agreed to limit the markups to 1.25 percent for loans of 60 months or less, and 1 percent on loans with terms longer than 60 months.
     “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 Justice Department’s civil rights division. “We recognize that dealerships perform a valuable service in connecting customers with lenders and that they should be fairly compensated for that service. 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 government estimated that the average black borrower paid more than $250 over the course of an auto loan than white borrowers. Hispanics paid $200 more and Asian borrowers paid an extra $150, according to the Justice Department.
     Federal law prohibits such discrimination by all lenders, including in the auto industry.
     A federal judge must sign off on the settlement, which was filed in conjunction with the government’s complaint on Tuesday.

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