CFPB Warns Lenders About Discriminatory Auto Loans

March 22, 2013, Written By Bill Hardekopf

The Consumer Financial Protection Bureau is turning its attention to auto lenders.

The CFPB says some lenders may be giving auto loans through auto dealerships that charge minorities above-market interest rates. It says the potentially discriminatory markups in auto lending may result in tens of millions of dollars in consumer harm each year

“Consumers should not have to pay more for a car loan simply based on their race,” said CFPB Director Richard Cordray in a statement. The Bureau’s bulletin “clarifies our authority to pursue auto lenders whose policies harm consumers through unlawful discrimination.”

When consumers finance automobile purchases from an auto dealership, the loan is often financed indirectly through a third party lender. The dealer originates the loan and finds financing sources. The lender usually provides the dealer with an interest rate that the lender will accept for a given consumer. Dealers then charge the consumer a higher interest rate than the rate the lender gave the dealer, a practice called “dealer mark-up.”  The lender shares a portion of the money they make off this higher interest rate with the dealer.

The CFPB found research suggesting that markup practices may lead to African Americans and Hispanics being charged higher markups than other similarly-situated white consumers.

The Equal Credit Opportunity Act makes it illegal for a creditor to discriminate in any aspect of a credit transaction based on race, religion, national origin, gender, marital status and age.

The CFPB wants to ensure that lenders follow these rules.



The information contained within this article was accurate as of March 22, 2013. For up-to-date
information on any of the terms, cards or offers mentioned above, visit the issuer's website.