Honda reached a settlement Tuesday to resolve allegations that the company’s individual dealerships have discriminated against minority car buyers by raising interest rates on loans.
The dispute alleges that Honda policies dating back to 2011 have resulted in minority groups paying as much as $250 more on average for auto loans because of their race, according to the Consumer Financial Protection Bureau.
Honda Finance, which issues loans to customers that finance car purchases, allowed individual dealers to mark up the rates, the CFPB said.
Dubbed a “dealer markup,” Honda regularly sets a risk-based universal interest rate that it relates to its auto dealers. Honda then allows the individual dealerships to charge a higher interest rate when they complete the deal with the consumer, according to CNN.
The company said in a statement that it “strongly opposes any form of discrimination, and we expect our dealers to uphold this principle as well.”
In addition to the million dollar settlement, American Honda Finance Corporation said it will start capping interest markups by the end of the year. Honda dealers will be restricted to charging between 1 and 1.25 percentage points on loans.
“We firmly believe that our lending practices have been fair and transparent,” Honda said in a statement.
The Department of Justice’s Civil Rights Division head Vanita Gupta believes that Honda’s commitment to capping interest rates is a step in the right direction.
“We commend Honda for its leadership in agreeing to impose lower caps on discretionary markups and for its commitment to treating all of its customers fairly without regard to race or national origin,” said Gupta.
Executive Director of the National Association of Consumer Advocates Ira Rheingold said the discriminatory markup practice is evident in almost every major auto dealer in the country, according to the Chicago Tribune.
Honda’s settlement, according to Rheingold, will have a substantial effect on the entire auto industry.
“The auto dealers will not be happy. 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,” he said.