Honda will pay $24 million for overcharging minorities

Honda reached a settlement Tuesday to resolve allegations that the company discriminated against black and Asian car buyers by marking up interest rates on loans. Consumer advocates say the practice is rampant across the auto industry. 

Yuriko Nakao/Reuters/File
A logo of Honda Motor Co. at a Honda dealer in Kawasaki, south of Tokyo. Honda has settled with the US Justice Department over charges that it made minority car buyers pay higher prices.

Honda reached a settlement Tuesday to resolve allegations that the company discriminated against minority car buyers by marking up interest rates on loans, a practice industry experts describe as common because of the discretion given to individual dealerships.

Honda's settlement with the U.S. Department of Justice, which is subject to court approval, was filed in federal court in Los Angeles. Honda 's U.S. operation is based in nearby Torrance, California.

The Justice Department and the Consumer Financial Protection Bureau accused Honda dealers of charging higher interest rates to thousands of black, Hispanic, Asian and Pacific Islander customers than white car buyers. Those minority customers paid an average of between $150 and $250 more during the terms of their loans, the Justice Department said.

Honda said in a statement that it "strongly opposes any form of discrimination, and we expect our dealers to uphold this principle, as well."

"We firmly believe that our lending practices have been fair and transparent," the company said.

Under the settlement, Honda is agreeing to pay $24 million to past victims of discriminatory lending and cap the interest-rate markups that dealers can charge to between 1 and 1.25 percentage points, depending on the length of the loan.

The Justice Department called the settlement groundbreaking, specifically referring to the markup caps.

"We believe that Honda's new compensation system balances fair compensation for dealers and fair lending for consumers," said Vanita Gupta, head of the Justice Department's civil rights division. "We hope that Honda's leadership will spur the rest of the industry to constrain dealer markup to address discriminatory pricing."

Like most auto lenders, Honda makes most of its loans through car dealers that help customers pay for their vehicles by submitting their loan applications to Honda. Honda dealers had been able to raise interest rates at their discretion and were able to get bigger payments from Hondafor charging more, the Justice Department said.

Ira Rheingold, executive director of the Washington, D.C.-based National Association of Consumer Advocates, said the practice is rampant industry-wide.

"It's a horrible process," Rheingold said. "As long as a car dealer arranges financing, and there's no control over what the car dealer can charge, there's going to be abuse and there's going to be discrimination, because they're going to look you over and say, 'I can get away with charging you more.' "

There's no doubt that other auto lenders will take note of Honda's settlement, particularly the markup caps, Rheingold said.

"The auto dealers will not be happy," he said. "It will hurt their bottom line to the extent that their bottom line has been helped by practices that should not have happened in the first place."

You've read  of  free articles. Subscribe to continue.

Dear Reader,

About a year ago, I happened upon this statement about the Monitor in the Harvard Business Review – under the charming heading of “do things that don’t interest you”:

“Many things that end up” being meaningful, writes social scientist Joseph Grenny, “have come from conference workshops, articles, or online videos that began as a chore and ended with an insight. My work in Kenya, for example, was heavily influenced by a Christian Science Monitor article I had forced myself to read 10 years earlier. Sometimes, we call things ‘boring’ simply because they lie outside the box we are currently in.”

If you were to come up with a punchline to a joke about the Monitor, that would probably be it. We’re seen as being global, fair, insightful, and perhaps a bit too earnest. We’re the bran muffin of journalism.

But you know what? We change lives. And I’m going to argue that we change lives precisely because we force open that too-small box that most human beings think they live in.

The Monitor is a peculiar little publication that’s hard for the world to figure out. We’re run by a church, but we’re not only for church members and we’re not about converting people. We’re known as being fair even as the world becomes as polarized as at any time since the newspaper’s founding in 1908.

We have a mission beyond circulation, we want to bridge divides. We’re about kicking down the door of thought everywhere and saying, “You are bigger and more capable than you realize. And we can prove it.”

If you’re looking for bran muffin journalism, you can subscribe to the Monitor for $15. You’ll get the Monitor Weekly magazine, the Monitor Daily email, and unlimited access to