Congress relaxes rules against racial discrimination in car loans
The color of your skin can make buying a car more expensive, as decades of experimentation and data show.
As a result, in 2013 the Consumer Financial Protection Bureau issued a notice re-affirming that discriminatory car loans are illegal.
The House of Representatives voted Tuesday to repeal these guidelines weeks after the Senate took the same measure. The measure now goes to President Donald Trump, who is expected to sign it.
Here’s what you should know.
Why the manual was issued
Car dealers often work with outside lenders such as banks or credit unions to offer financing options to consumers.
Once this “indirect” lender offers the car dealer an interest rate on a car loan, the dealer is often allowed to charge that interest rate to the buyer for additional compensation. This discretion on the part of traders has led to discriminatory lending practices, research shows.
“Lending should be as objective as possible, but when you add discretion, you add subjective means that are harder to keep transparent and accountable for,” said Delvin Davis of the Center for Responsible Lending, a nonprofit research and advocacy group for consumers who did the car loan research.
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It was only earlier that year that the National Fair Housing Alliance, a collection of organizations fighting housing and other forms of credit discrimination, launched an investigation into the car loan industry by sending white and non-white “testers” to car dealerships in Virginia.
More than 60 percent of the time, those non-whites who were better qualified than their whites were given more expensive options. As a result, people of color who were discriminated against paid an average of $ 2,662 more over the life of the loan.
Proponents have long urged the government to step in and address these double standards.
A spokesman for the National Automobile Dealers Association, a trade group, said removing these guidelines would encourage discrimination and was “wholly unfounded.”
“America’s auto dealers firmly believe that every customer is treated fairly and that there is no room for any kind of discrimination in the auto trade – period,” said Jared Allen, senior director of media relations.
What the guide said and did
The 2013 Consumer Financial Protection Bureau guidance explained how the Equal Credit Opportunity Act – which prohibits lending based on a person’s race, religion, gender, or age – also applies to the auto loan industry.
And it made it clear that lenders who offer credit through dealers are responsible for unlawful and discriminatory pricing.
Shortly after the guidelines were published, the CFPB and the Department of Justice achieved their “largest car loan discrimination comparison in history” with Ally Bank by charging more than 235,000 minority borrowers higher car loan rates between 2011 and 2013. The bank was fined 80 million
In response to a request for comment, an Ally spokesperson referred to the statement made by the lender following the settlement: “Ally does not engage in or condone any violations of the law or discriminatory practices, and based on the company’s analysis of its business if it does so do not believe that there is any measurable discrimination by car dealers. “
Since then, the government has also reached agreements with Fifth Third Bank, Toyota, and Honda on the lending practices of these companies.
A Honda spokesman said they had reached an agreement with the CFPB but disagreed with the way the government had tested for bias.
“[We] firmly believe that our lending practices have been fair and transparent, “said Honda’s Chris Martin. Fifth Third Bank and Toyota did not respond to requests for comment.
The worries are imminent
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Proponents said they fear repealing these guidelines would encourage car lenders and dealers to rate loans based on criteria other than creditworthiness and income.
“It’s amazing how big companies started to behave just because they knew they were being watched,” said Hilary Shelton, senior vice president of advocacy and policy for the NAACP. “Now we’ll see them return to their discriminatory practices.”
Such a turnaround is already underway, said Davis, lead researcher on auto loans at the Center for Responsible Lending.
In the midst of consumer advice, BB&T, a retail auto loan company, voluntarily switched from its markup model to a flat rate method where every car loan generates the same compensation, Davis said.
“But when the change in CFPB leadership came,” said Davis, “BB&T went back to the way it was, where rate premiums were allowed.”
David R. White, vice president of corporate communications at BB&T, said the company is committed to treating all consumers equally – and that the return to the rate model was to improve its business.
“We introduced a more traditional car pricing program in March this year to give our dealership customers more options and flexibility,” said White.
In a press release, Senator Jerry Moran, R-Kan said., One of the drafters of the Guideline Reversal Act said it would “restore a sense of stability to the auto market and ultimately pave the way to lower costs for all car buyers”.
What can you do to protect yourself?
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