Honda's U.S. auto financing arm agrees to $25M settlement

Kevin McCoy | USA TODAY

Honda's U.S. financing division will pay $25 million to resolve allegations the company overcharged minority buyers with higher interest rates on vehicle loans, federal officials said Tuesday.

While denying it practiced discrimination, American Honda Finance agreed to offer $24 million in relief to thousands of African-American, Hispanic and Asian and Pacific Islanders who paid higher rates on their loans than white borrowers since Jan. 2011, without regard to their credit records, the Department of Justice and Consumer Financial Protection Bureau said.

The company, the ninth's largest U.S. auto lender, also agreed to pay an additional $1 million to fund a consumer financial education program.

An average African-American buyer of a Honda or Acura vehicle had to pay more than $250 extra during the term of a loan as the result of racial discrimination, federal officials said. An average Hispanic buyer paid more than $200 extra, and Asian and Pacific Islanders paid more than $150 extra, the officials said.

Honda is known as an indirect lender because it makes most of its loans through vehicle dealers who help customers pay for new or used cars by submitting loan applications to the company. Like most other major auto lenders, Honda's business practice allowed car dealers discretion to vary a loan's interest rate based on a borrower's objective credit-related factors, the officials said.

Vehicle dealers receive higher payments from Honda on loans carry a higher interest rate. Honda agreed to limit car dealers' discretion to charge interest rate markup on loans and improve the company's monitoring and compliance systems.

An administrator appointed under the settlement terms will locate victims and distribute compensation at no cost to affected borrowers.

"Honda knew or had reason to know that its policy and practice of allowing dealers to mark up consumers' interest rates created a substantial risk of discrimination, according to a civil court complaint filed by federal prosecutors.

"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 Vanita Gupta, head of the Department of Justice's Civil Rights Division.

Other auto lenders "should take note of" the settlement, said CFPB Director Richard Cordray.

Honda said it agreed to the consent order solely to avoid contested litigation with the Department of Justice and instead devote its resources "to providing fair and industry-leading services to its customers."

"Honda affirmatively asserts that it has treated all of its customers without regard to race or national origin, and that its business practices have promoted and achieved fairness across all customer groups, the company said in the consent order, which was filed in a California federal court and requires judicial approval.

"Furthermore, Honda has not been informed that the United States contends Honda or any of its employees engaged in any intentional discrimination or disparate treatment of minorities," the company said.

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