The price of a car and the loan that consumers use to purchase it shouldn't vary according to race, the Consumer Financial Protection Bureau (CFPB) said today, as it warned lenders who offer loans through dealers that they will be held responsible for unlawful, discriminatory pricing.
“Consumers should not have to pay more for a car loan simply based on their race,” said CFPB Director Richard Cordray. “Today’s bulletin clarifies our authority to pursue auto lenders whose policies harm consumers through unlawful discrimination.”
Consumers could be losing tens of millions of dollars a year because of discriminatory lending, the agency said.
The problem involves what are called "indirect" auto lenders, which often allow the dealer to charge the consumer an interest rate that is higher than the rate the lender gave the dealer -- typically called “dealer markup.”
As a result, markups generate compensation for dealers while frequently giving them the discretion to charge consumers different rates regardless of consumer creditworthiness. Lender policies that provide dealers with this type of discretion increase the risk of pricing disparities among consumers based on race, national origin, and potentially other prohibited bases.
Research indicates that markup practices may lead to African Americans and Hispanics being charged higher markups than white consumers with similar credit ratings, CFPB said.
Today’s bulletin explains how the Equal Credit Opportunity Act (ECOA) applies to indirect auto lending. The ECOA makes it illegal for a creditor to discriminate in any aspect of a credit transaction on prohibited bases including race, color, religion, national origin, sex, marital status, and age.