honda financial services customer service The Department of Justice and the Consumer Financial Protection Bureau today announced a landmark settlement with American Honda Finance Corporation (Honda) to resolve claims that the company violated the Equal Credit Opportunity Act in its auto lending practices. The settlement requires Honda to change its business practices by significantly limiting dealer discretion to charge interest rate markups, and provides $24 million for compensation to thousands of victims of past discrimination.
Honda is known as an indirect auto lender, meaning it makes most of its loans through car dealers nationwide who help consumers buy a new or used vehicle. Rather than taking applications directly from consumers, Honda sets a risk-based interest rate, or “buy rate,” which it conveys to car dealers. Dealers then use that price, as well as other factors to determine the consumer’s creditworthiness, to set the terms of their final contracts with borrowers. This practice, called “dealer markup,” allows dealers to generate greater compensation than a dealer who does not sell a loan with an interest rate markup.
On average, the discriminatory pricing and compensation scheme caused African-American, Hispanic and Asian/Pacific Islander borrowers to pay $150 to over $250 more for their Honda auto loans than non-Hispanic white borrowers. Under the terms of the settlement, Honda will compensate victims through an administrator who will locate eligible borrowers and make payments of compensation to them at no cost. Honda will also make reports to the CFPB on this activity.
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