If you're Black, Latino, or Asian and you bought a Honda, you might have paid too much for the car—or at least more than a White person.
The American Honda Finance Corporation has agreed to pay $24 million to borrowers as part of a settlement with the Consumer Financial Protection Bureau and the Justice Department. The government said that Honda's finance company overcharged consumers of color between $150 and $250 on average when compared with White borrowers with similar credit.
And it all has to do with something called "interest-rate markup."
The government's investigation found that when a Latino, Asian, or Black buyer bought a car, that optional markup rate tended to be much higher.
"No one has an idea that this practice exists," says Christopher Kukla, senior vice president of the Center for Responsible Lending.
A salesperson might show a buyer different models, colors, packages, and all the while a sticker price rests taped to the car's window. Most people know they can negotiate that price. The buyer haggles. The salesperson might try the "I have to check with my boss" routine.
An agreed-upon price is reached. The bartering is finished.
Only, it really isn't.
Many dealerships offer in-house financing, as does Honda. An interest rate might seem like something fixed to credit, but dealerships actually have a small say. The "buy rate" is the minimum interest that a finance company will offer a buyer, based on the risk of the loan, which is based on credit. But the dealer can mark up a portion of that rate. Honda's finance company allowed dealers to add up to an additional 2.25 percent markup.