New York Honda dealership penalized over discriminatory practices

Car dealers and lenders keep getting caught engaging in discriminatory practices, cheating consumers based on race, particularly harming car buyers who are African American and Latino.

It’s illegal, but many auto dealers persist in targeting people of color, selling them overpriced junkers and charging them extra for worthless add-ons and sky-high interest rates.

One of the more blatant examples: According to the Federal Trade Commission, “Bronx Honda told their employees to charge African-American and Latino people higher interest rates and fees when they applied for dealer financing.” The agency also said that the dealership paid their employees bonuses for ripping off people of color. The worse the terms, the higher the bonuses.

“People who were shopping for a Certified Pre-Owned Honda were also told that ‘certification’ and other fees (which often added up to $3000) were required. Despite the fact that the cars were Certified Pre-Owned before they arrived on the sales floor.”

The FTC also alleged the dealership often added additional “fees,” in the form of a higher total sales price or monthly installments, without telling the buyers. This scam is very popular among auto dealers, who exploit “e-contracting” to conceal the predatory prices from their victims.

Sometimes, consumers never even see what is on the computer screen. They don’t know what the real cost is until it’s too late.  CARS heard from one consumer who bought a new car from a dealership in Vallejo, California, who was repeatedly promised it would cost $24,000. But when the contract was printed out, with his “e-signature” on it, the price was over $48,000 — more than double what the dealer had promised.

How can you avoid paying too much for your next car? Here are CARS’ tips for car buyers, showing step by step how to get a good deal on a safe, reliable used car without having to buy from a professional, racist crook.

FTC News release: NYC Car Dealer Accused of Discriminatory Lending

Ally Bank ordered to pay $80 million to consumers harmed by discriminatory lending

More than 235,000 African-American, Hispanic, and Asian Pacific Islander borrowers, who were charged higher interest rates on their auto loans from Ally Bank, based on their race, stand to get back $80 million, thanks to courageous action by the Consumer Financial Protection Bureau and U.S. Department of Justice.

The consumer protection and law enforcement agencies are coordinating their efforts to curb discriminatory lending in auto loans, which cost car buyers billions of dollars in hidden extra fees, while fattening the profits made by lenders and auto dealers. This is the government’s largest auto loan discrimination settlement ever.

“Discrimination is a serious issue across every consumer credit market,” said CFPB Director Richard Cordray. “We are returning $80 million to hard-working consumers who paid more for their cars or trucks based on their race or national origin. We look forward to working closely with the Justice Department and Ally to make sure this serious issue will be addressed appropriately in the years ahead as well.”

Read more: CFPB and US DOJ order Ally to pay $80 million to car buyers

 

Car title loans — who pays, who makes a killing?

High-cost car title loans are illegal in most states. That’s because they’re so risky for borrowers, often ruining lives. Particularly when people lose their cars — usually their only way to get to work — and then their jobs.

In 2004, in response to a two-part series of front-page reports by David Lazarus in the San Francisco Chronicle, exposing the seedy but growing car title lending business, California legislators vowed to put a stop to title loans.  Fast-forward almost a decade, and what’s changed?  Nothing — except the shady, predatory businesses continue to expand and cost more consumers triple-digit interest, and often their vehicles.

How high is the default rate for car title loans? At a hearing before the California Assembly Banking Committee, Oscar Rodriguez, CEO of LoanMart, testified on behalf of the leading trade association for car title lenders operating in California.  When asked, point-blank, he admitted that while some lenders have default rates of 14-15%, others have rates up to 40-50%. This is astronomical, and powerful evidence that the loans are predatory — not designed to aid the borrowers, but to strip them of their only valuable material possession — their car.

California caps the interest rate on some loans below $2500. So title lenders skirt the law by talking consumers who seek smaller loans into getting loans over the $2500 threshold. Consumers naturally assume that must mean that they qualify to borrow more, based on their income or creditworthiness. In reality, their credit has nothing to do with the loan amount. As long as the lender can seize their car, and it’s worth much more than the loan, there’s no risk for the lender.  Of course, the bigger loan increases the risk for the borrower.

As the Attorney General of Florida warns: “Remember that a title loan is not risky for the lender but it may be very risky for you.”  How to protect yourself: title loans

So who benefits from car title lending? Award-winning journalist Gary Rivlin’s portrait of who’s living high off the hog thanks to high-cost loans, including car-title loans:

Portrait of a Subprime Lender

What can you do to avoid the car title lending trap?  If at all possible, save up instead of getting a loan. If that’s not possible, find other, less-risky ways to borrow money.  Some lower-risk options: Join a credit union. Seek loans from family members. Sell your car and buy a less-expensive one. Usually, you’re much better off selling it yourself than having it repossessed by a car title lender.

Read more:

Auto-title loans drawing scrutiny — Sacramento Bee, by Personal Finance Columnist Claudia Buck

‘Car-title loans’ a road to deep debt  — San Francisco Chronicle, by Business Reporter Carolyn Said

How to protect yourself: title loans — What else can you do in a pinch, that’s less risky? Advice from Florida’s Attorney General