The Department of Justice and the Consumer Financial Protection Bureau today announced a groundbreaking settlement with American Honda Finance Corporation, doing business as honda financial services customer service The company is based in Torrance, California. The settlement resolves allegations that Honda engaged in a pattern or practice of discrimination against thousands of African-American, Hispanic and Asian/Pacific Islander borrowers in auto lending. On average, the settlement will provide victims with over $250 more in total compensation than they would have received without the discrimination.
The complaint alleges that Honda violated the Fair Housing Act and the Equal Credit Opportunity Act by allowing car dealers to charge higher interest rates on loans backed by the company. Specifically, the company’s “indirect” auto lending business model allowed car dealers to mark up loans with different interest rates from those that Honda initially set based on borrower risk and other objective criteria. This unauthorized markup generated additional compensation for dealers and resulted in higher dealer-charged interest rates for minority borrowers.
As part of the settlement, the company has committed to pay $24 million in compensation to harmed borrowers. The money will be distributed by an administrator and will be free to eligible borrowers. The company has also agreed to implement a new plan of action to ensure that victims are made whole in the future. The company will be required to regularly report to the CFPB on its progress. The company will also be required to test new ways to reduce discrimination in auto lending and must ensure that its system is designed to identify and prevent illegal practices. The department and the CFPB are committed to making sure that the auto loan market is as open and competitive as possible for consumers.