Honda Motor Co reached a settlement with the Justice Department which had accused the motor maker of overcharging Hispanic, black, and Asian customers on car loans. The company agreed to pay $25 million to escape any impending civil penalties.
Most of the money will go to a special fund that will compensate car buyers that had to pay higher interest rates to Honda dealerships, while $1 million will be used in a campaign designed to educate car buyers and warn them against similar practices from auto makers.
The company said that it understood the importance of fair car lending, but disagreed with the methods employed by the DOJ and the Consumer Financial Protection Bureau during their investigation into its lending practices.
Officials were surprised that Honda agreed on the settlement. They said that the Japanese car lender is the first to willingly change its lending practices, no lawsuit involved. Authorities hope that other car makers may soon follow in Honda’s footsteps.
“We hope that Honda’s leadership will spur the rest of the industry to constrain dealer markups to address discriminatory pricing,”
said Vanita Gupta of the DOJ.
Ms. Gupta, who is chief investigator at the Justice Department, said that the entire auto loan market is affected by “discriminatory practices.” Yet, she declined to name the auto lenders that engaged in similar practices. She also noted that the money provided by Honda would both provide a basis for fair compensation and prevent unfair lending practices from reoccurring.
The federal officials have been scrutinizing other car lenders over the course of years, too. A couple of years ago, General Motors’ Ally Financial Inc, which provided car buyers with consumer credits, agreed to pay $98 million to close a federal investigation into its lending business. Back then, the company said that it didn’t engage in any unfair practices, but agreed to pay the money.
Bill Fox, head of the a group that backs car dealers’ interests, believes that the recent settlement would “hamstring” the possibility of car buyers to request lower interest rates with dealership when agreeing to sign a contract.
Mr. Fox added that the move would also deprive car buyers of up to 1 percent discounts of the APR.
Honda Motors is not directly involved in car loans. It runs the business through American Honda Finance, which receives loan applications from local dealerships. But under the recent settlement, the car maker would limit dealers’ negotiations with customers and prevent them from hiking interest rates.
Image Source: Prinbrasov
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