Consumer Finance Insights
February 4, 2016

CFPB Settles Discriminatory Lending Claims Against Auto Manufacturer for $21.9 Million

On February 2, 2016, the Consumer Financial Protection Bureau announced a settlement with an auto manufacturer resolving claims of alleged discrimination under the Equal Credit Opportunity Act.  Under the terms of the settlement, the auto manufacturer will pay “$21.9 million in restitution to thousands of African-American and Asian and Pacific Islander borrowers who paid higher interest rates than white borrowers for their auto loans, without regard to their creditworthiness, as a result of its past practices.”

According to the settlement, the Bureau, in connection with a joint investigation with the Department of Justice, found that, between January 1, 2011 and December 31, 2013, “African-American borrowers were charged approximately twenty-seven basis points more in dealer markup than similarly-situated non-Hispanic whites” on their auto loans.  This amounted to $200 in additional interest costs, on average, paid by minority borrowers versus similarly situated non-Hispanic white borrowers.  According to the settlement, Asian and Pacific Islanders were charged eighteen basis points more in dealership markup, on average, as compared to similarly situated non-Hispanic white borrowers, resulting in roughly $100 in additional interest costs per loan.

During the course of the investigation, on September 10, 2014, the auto manufacturer “implemented a dealer monitoring program to enhance compliance” with anti-discrimination laws.  The settlement requires the auto manufacturer to implement a dealer compensation policy to address dealerships’ discretionary markups that allegedly contributed to the discriminatory financing.  To compensate for these alleged violations, the auto manufacturer agreed to pay 21.9 million.  The Bureau did not assess penalties “because of the proactive steps the company is taking that directly address fair lending risk by substantially reducing or eliminating discretionary pricing and compensation systems.”

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