On Tuesday, Honda was able to reach an agreement to resolve the allegations that its financial arm in the U.S. had discriminated against car buyers who were minorities by increasing the interest rates it charged on loans, a practice experts in the industry described as common due to the discretion individual dealerships are given.
Honda made the settlement with the U.S. Justice Department, which still needs court approval, but was filed in Los Angeles federal court. The U.S. operations of Honda are based in Torrance, California, which is nearby.
The Consumer Financial Protection Bureau and the Department of Justice had accused the Honda dealers of charging interest rates that were higher for thousands of Hispanic, black, Pacific Islander and Asian customers than white buyers of autos were charged.
Those different minority customers paid on average up to $250 more during the life of the loan, said the DOJ.
Honda, in a prepared statement said that it strongly opposed any type of discrimination and expects the dealers to uphold principles as well.
Honda added in the statement that it believes that its lending practices were both transparent and fair. Under this settlement, Honda agreed to pay its past victims $24 million that dealers charged in mark ups of between 1% and 1.25% depending upon the life of the loan.
The DOJ called the settlement one that was groundbreaking specifically referring to markups.
Like the majority of auto lenders Honda books the majority of its loans through the car dealers that help clients pay for the autos by submitting loan applications to Honda.
The dealers were able to increase interest rates at their own discretion and could charge bigger payments from Honda if they charged more, said the DOJ.
One analyst in the industry called the process horrible because as long as the car dealer can arrange the financing and no control exists over what can be charged by the dealer, there is going to be cases of abuse and discrimination because there are to look at you and say I can get away with charging more.