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U.S. Settles Lawsuit Accusing Honda of Car Loan Discrimination

Honda's lending arm Tuesday agreed to limit the amount by which its dealers can mark up interest rates on car loans, part of a discrimination lawsuit.
Image: Seoul Motor Show
epa04689633 A model poses next to the Honda new HR-V car during the press day of Seoul Motor Show at the Korea International Exhibition Center in Goyang, Gyeonggi province, South Korea, 02 April 2015. EPA/KIM HEE-CHULKIM HEE-CHUL / EPA

Honda's lending arm today agreed to limit the amount by which its dealers can mark up interest rates on car loans, as part of an agreement to settle a discrimination lawsuit.

The Justice Department and the Consumer Financial Protection Bureau claimed that car loans issued by American Honda Finance Corporation required higher payments from minority buyers.

"Discrimination of any kind is intolerable," said Eileen Decker, the U.S. Attorney for the Central District of California, where the Honda lending unit is based. "Other auto companies should follow Honda's lead in taking steps to ensure that their sale and financing practices do not result in discrimination."

The government claimed in a lawsuit that Honda's practices, allowing dealers broad discretion to mark up the interest rates on company-issued loans, resulted in higher prices for African-American, Hispanic, and Asian customers.

Though the increases were modest — as much as $250 over the life of a loan — the lawsuit said thousands of minority customers were subjected to the higher fees.

To settle the lawsuit, Honda agreed to limit the size of dealer markups and to provide $24 million in compensation to past victims of lender discrimination.

The company is the nation's ninth-largest auto lender.

In a statement, Honda said it "strongly opposes any form of discrimination, and we expect our dealers to uphold this principle as well. We firmly believe that our lending practices have been fair and transparent."

Because loan applications did not indicate the race or national origin of Honda's customers, the government estimated the number of minority applicants based on where they lived and the ethnic origins of their names.

Honda said today it had a "difference of opinion" with the government about this method. "But we nonetheless share a fundamental agreement in the importance of fair lending."