By on September 23, 2013

CFPB

According to regulatory filings by Toyota Motor Credit Corp., the giant automaker’s car financing arm, and American Honda Finance Corp., which fills a similar role for Honda, the United States Consumer Financial Protection Bureau and the Department of Justice are investigating major auto manufacturers for possible lending bias based on race, which would be a violation of the 1974 Equal Credit Opportunity Act.  According to Bloomberg, the agencies are looking into how loans that the automakers’ credit companies provide to auto dealers are priced. Bloomberg reports that as many as seven car companies have been asked for data that may be related to the borrowers’ races and interest rates charged. Both government agencies declined to comment on the matter.

The Justice department and the CFPB are apparently looking into what the consumer protection agency calls “dealer markup”, what the industry refers to “dealer participation” or “dealer-assisted finance”, the practice of lenders allowing dealers to add to the interest rate they are charged by the automakers’ credit arms so they can pocket the difference. Dealers say that the added interest is a fair price for arranging the loan, processing the paperwork and related services. Consumer activists say the arrangement gives dealers an incentive to push more expensive loans.

In March, the CFPB warned banks that they face the agency’s enforcement procedures if they are found to be funding discriminatory vehicle loans provided by car dealers. At the time, car dealers widely criticized the agency for what the dealers say is an attempt to get around statutory restrictions on the CFPB’s power. The 2010 “Dodd-Frank” law that created the agency explicitly exempted automobile dealers from being regulated by tha CFPB. Dealers say that the CFPB is using the automakers’ credit arms to do what Congress specifically prohibited the government from doing. Members of Congress have asked the agency how it will determine the existence of discrimination.

The CFPB said last year that it would use a controversial legal theory known as “disparate impact” which says that even if there is demonstrably no intention to discriminate, if statistical analysis shows that the result of policies is over or under representation in the results relative to demographics, that itself can be used as proof of discrimination. Because the theory is based on statistical analysis, the agencies have requested a large amount of data on borrowers’ races and the interest rates they were charged. Critics of “disparate impact” say that besides ignoring intent, an important factor in American jurisprudence, the theory’s advocates apply it in a discriminatory manner themselves.

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108 Comments on “U.S. DoJ, Consumer Financial Protection Bureau Investigate Toyota, Honda, Other Automakers’ Credit Arms For Lending Bias...”


  • avatar
    setsail26

    Undoubtedly they will find that certain ethnic groups pay a higher rate on loans. Of course certain ethnic groups have, on average, a lower credit score and thus get higher rate loans. How can you accidentally discriminate against someone?

    • 0 avatar
      carguy

      It depends what they find. If there is a pattern of customers with equal credit scores that get different APR rates based on race then that is worth following up.

      • 0 avatar
        billfrombuckhead

        They have found that in the past, that African American with good credit scores still pay more, either because of “redlining” or dealers targeting them. Nissan settled a class action lawsuit about this.
        http://www.nytimes.com/2003/02/21/business/nissan-settles-bias-suit-by-minority-buyers.html

        Dealers and their finance managers negotiate the dealer profit on the financing with the customers. The lender will say the “buy rate” is say 15% and allow the dealer to charge say another 5% and keep the profit . The call it making money on the “back end.”

        Heck Bank America (I call them Bank Robbers of America) got caught doing similar targeting of minorities,immigrants and the elderly and got a little slap across the wrist.

        • 0 avatar
          Landcrusher

          Bill,
          I read that story and its clear Nissan did nothing wrong at all. When the NYTimes doesn’t take the opportunity to repeat the racial narrative, you know there is no there there. See my comment below about how this will turn out, as it seems I will be correct if these new cases turn out like this Nissan one.

          • 0 avatar
            billfrombuckhead

            Settling a class action lawsuit of course they didn’t admit guilt but..
            “The unit will also set up a program for current customers who are black or Hispanic, and will offer preapproved car loans, with no markup, to at least 50,000 such people over the next five years.

            The company will also screen enough potential black and Hispanic car buyers to offer 625,000 such buyers preapproved markup-free loans over the next five years.”
            http://www.nytimes.com/2003/02/21/business/nissan-settles-bias-suit-by-minority-buyers.html

            What’s going on with Toyota and Honda isn’t a class action lawsuit but an investigation by the DOJ. Maybe they have some phone calls or e-mails.

          • 0 avatar
            Landcrusher

            No, not that didn’t admit guilt. It is clear they did nothing wrong at all. They were guilty of profiting from the bad actors at the dealerships. You and I are just as guilty everyday when we buy stuff made in china by low wage workers or subsidized goods or whatever. The difference here is that they could get extorted for it under the law.

          • 0 avatar
            billfrombuckhead

            Like Nissan Credit doesn’t know dealers act like that or who lives in what zipcodes. Yeah, they kept an arms length between themselves and dealers but a trail would have been a disaster for them. These banks have had their version of “Ghetto Tracker” for quite some time.

            That why Nisan sttle in court and reached out to their previous minority customers.

      • 0 avatar
        wsn

        @carguy “It depends what they find. If there is a pattern of customers with equal credit scores that get different APR rates based on race then that is worth following up.”

        Here you have made an assumption that people with equal credit scores are equal likely to default. That may not be true. There is a possibility that a black borrower with a score of 650 being more likely to default than a white borrower with 650. I am not saying that’s a fact, but a possibility.

        To judge whether there is real bias, a more logical way is to compare the default rate of qualified real borrowers (not the ones rejected). If there is an unreasonably high hurdle for black borrowers, we should see a notably lower rate of default rate with qualified black borrowers.

        • 0 avatar
          carguy

          @wsn: You are right that for individuals that may be the case due to other factors such as credit history length etc.

          However, if there is a consistent statistical racial bias over 100s or 1000s of cases where credit cost were inflated regardless of credit score then there may be a problem.

          • 0 avatar
            wsn

            What if there is a consistent statistical evidence that black borrowers default more than white borrowers of the same credit score AND same length of history AND same anything objective factor you can think of?

        • 0 avatar
          FreedMike

          “There is a possibility that a black borrower with a score of 650 being more likely to default than a white borrower with 650. I am not saying that’s a fact, but a possibility.”

          Perhaps that’s your gut feeling, but legally, lenders are NOT allowed to make decisions based on gut feelings on prohibited bases, and race is one of them. So is age, sex, religion, family status, and several other bases.

          • 0 avatar
            SayMyName

            There are ways to maneuver around the legal obstacles, regardless of any affirmative action nonsense.

            Lenders have a responsibility to be cautious when extending credit. Like it or not, race and socioeconomic background remain valid criteria when considering a consumer loan.

            To put it more bluntly: how many of us would feel comfortable loaning thousands of dollars to the typical Obama voter?

          • 0 avatar
            FreedMike

            “Lenders have a responsibility to be cautious when extending credit. Like it or not, race and socioeconomic background remain valid criteria when considering a consumer loan.”

            And I’m sure that if a black bank employee was turning down white borrowers who don’t make much and live in the country, you’d be perfectly OK with that. Right?

            I didn’t think so.

            As far as the Obama crack goes…troll elsewhere. There are plenty of Republican credit criminals out there.

          • 0 avatar
            Landcrusher

            SayMyName,
            That’s just stupid. What left wing nut factory pays you to pretend to be so ignorant?

          • 0 avatar
            SayMyName

            Wow, seems I offended some delicate sensibilities with my post.

            That’s the (inconvenient?) thing about the truth, though – it doesn’t care one whit about political correctness.

          • 0 avatar
            wsn

            @FreedMike “Perhaps that’s your gut feeling, but legally, lenders are NOT allowed to make decisions based on gut feelings on prohibited bases, and race is one of them. So is age, sex, religion, family status, and several other bases.”

            If the credit score is the best indicator of the ability to pay back loans, then we wouldn’t have this debate. What if another indicator, such as race, is easier to use and more accurate?

            Believe it or not, we all select people based on those factors. For instance, a non-Christian is highly unlikely to get elected for the president of the USA. Same goes for not married candidates.

      • 0 avatar
        redav

        It’s not even that simple.

        I recall reading somewhere that minorities don’t negotiate price & terms as well, which leads to them paying more. They aren’t being discriminated against, per se, but they do pay more because they don’t fight as hard (or have enough information/education) to pay less.

        There’s also the issue of geography. Different regions have different racial compositions (both local communities & state-wide). Different dealerships in different areas with different ‘needs’ will mark up loans differently, and that could lead to a false positive for racial profiling if they don’t properly evaluate the data.

        Someone mentioned looking at loan default data. Credit score is only part of the equation. Income matters. A person with more in savings (due to a higher income) is less likely to default on a loan, but may not have as good a credit score because of the type of debt he has or because he is often late making payments.

        • 0 avatar
          FreedMike

          It isn’t that “minorities don’t negotiate price & terms as well” per se – it’s that poor people have this problem, and poverty is more prevalent among black people in this country.

          I’ve been working with consumers of every race for well over a quarter century, and I can tell you that this is a matter of socioeconomics, not race.

      • 0 avatar
        carrya1911

        I took out a loan with Honda finance earlier this year. I don’t remember any questions about my race on the loan application form.

    • 0 avatar
      jmo

      That’s not the issue. “the practice of lenders allowing dealers to add to the interest rate they are charged by the automakers’ credit arms so they can pocket the difference.”

      Honda or Toyota offered X% and the dealer marked it to scam their customers. In the spirit of tranparency, dealers should have to disclose this fact.

      • 0 avatar
        Landcrusher

        No, they should not disclose. The cost of a loan is no different than the cost of the car. It’s neither illegal nor unethical to keep cost and profit information from a consumer. In fact, it’s necessary.

        If most consumers were given the cost and mark up on each product they bought with real transparency the economy would collapse tomorrow. The vast majority of people have no clue how businesses work or our government wouldn’t always be screwing it up. People would all balk at paying even zero actual mark up and value add would get squeezed out of the system taking years of soup lines to climb out of the spiral.

        When you borrow, there are a bazillion rules on what gets disclosed, but not on who gets what cut. If you made a law to force such disclosure, which has never been done, the cheese would simply move costing the consumer more.

        • 0 avatar
          April

          It’s the same reason credit card companies fought tooth and nail in keeping how much money they make when one makes the minimum payment as opposed to paying the balance off in three years.

          Keeping consumers in the dark on how much the banksters really screw them. Since forever.

          • 0 avatar
            Landcrusher

            That was never a secret to anyone with a high school level math skill.

          • 0 avatar
            wsn

            @Landcrusher

            I agree. Many people hate bankers simply because their brain can’t handle grade 5 math in a real world situation.

            I always liked bankers. They provided me with loans at amazingly low rate and the service is always top notch.

      • 0 avatar
        Sigivald

        “Honda or Toyota offered X% and the dealer marked it to scam their customers. ”

        What does “scam” mean in your world?

        In mine, it means offering something that isn’t what it’s presented as.

        Given that the customer is offered a deal at Y% (X + markup), there’s no scam at all; the customer is offered something that is *exactly* what it’s described as; a loan at Y%.

      • 0 avatar
        FreedMike

        I wouldn’t call that a scam per se, and it’s not illegal – a lender just has to disclose the final rate, not how it arrived at it – but it’s definitely not a nice way to do business. The best defense for any consumer is to be as prepared as he or she can – SHOP AROUND!

        • 0 avatar
          wsn

          But the problem is that Toyota itself is not the central bank. Thus, Toyota’s rate is a deduced rate itself.

          The commercial bank that lend Toyota money is not the original source either. It probably got the money partially from the central bank of Japan, partially from the US fed, some from bond investors and some from savings account.

          Now, can the tiny brains of those who complain really handle the amount of the information?

    • 0 avatar
      billfrombuckhead

      Back in 1983 when I first got in the car business, when I would bring a deal to the sales manager to get penciled, the first thing he would ask is “Are they black?”

      A couple years later a friend of mine got a job in the Bronx and he said the whole town was “redlined” and that they made the customers pay real high finance charges.

      Later on a in the late in the early 90′s, a very profitable industry grew up around “buy here, pay here” or “Compra Aqui Paga Aqui” providing loans to Hispanic immigrants often illegals. When they started cracking down on illegals that business sure went bad.

      When I got in the independent car business the owner would deny in house loans to customers if they lived on “Sixflags Drive” or “Franklin road”

      The dirty secret of the car business is that race is often used to generate higher profits.

      • 0 avatar
        geeber

        You do realize that 1983 is now 30 years ago…I was around then, and a lot has changed since that time.

        Providing “buy here, pay here” loans is not proof of racism, in and of itself, even if the lot owner was only selling to Hispanics. Was the dealer turning away potential buyers who were white (or Asian)? If that were the case, the groups with the valid bias complaints would be whites and Asians who were rejected by the lot, not the Hispanics who received financing.

        Perhaps buyers from those racial groups were not patronizing “buy here, pay here” lots at that time.

        • 0 avatar
          darkwing

          Someone ask Steve Lang how he chooses his customers. $20 says the words “paper bag” are never uttered.

        • 0 avatar
          FreedMike

          Yes, this still happens, Geeber.

          A few years back, I handled the mortgage for my ex-brother in law, who is from Mexico. His credit score was in the mid 700s.

          A couple of months later, he tried to buy a car, and was told his interest rate would be 21%, which is as high as it could go in Colorado without it being illegal. They were keeping the keys to his trade in to pressure him into buying.

          I went to the dealer (which, by the way, the dealer was in an area with a substantial Hispanic population), copy of his old credit report in hand, and asked loudly in the showroom whether white customers with mid-700 credit scores were being made to pay 21% interest, or whether my brother in law was some kind of special case.

          Needless to say, they got cooperative after that.

          A few years after that, I was working at the mortgage arm of a large, well known builder. I received a call from their sales office that I needed to deny the loan for XYZ borrower. Why? Because they made a mistake, and built a $40,000 option into her house that she hadn’t ordered, and couldn’t be uninstalled. Oh, and yes…they’d been fighting about this with her for several weeks in the local office and she was “uppity”. She was also black. She was also totally qualified for the loan.

          So, I was supposed to deny the loan for a qualified black borrower…because the seller made a mistake on the sales price and didn’t want to eat it. And because she was “uppity.”

          My ass it doesn’t happen. Yes, it does.

          • 0 avatar
            Pch101

            Car dealers being what they are, they try to screw anyone who they can. The F&I department is a tremendous profit center for dealerships.

            I suspect that there are both racist and cultural factors at work. You have certain minority groups who are less likely to know how to haggle in order to get the best deal and who have less experience dealing with bank financing, who are dealing with pros who know how to pull the wool over their eyes and take advantage of them.

            Race may help the dealership to rationalize their tactics, but they to charge everyone as much as they can stand to pay. A person’s demeanor and the preconceptions of the seller about their tolerance for paying will determine what kind of deal that the buyer will be offered — nobody’s paying the same thing, and they never will.

          • 0 avatar
            geeber

            FreedMike, these very scenarios have happened to white customers, too (generally the poorer and less educated ones).

            I’ve heard whites tell of those very same experiences. The difference is that the two customers you cited can level charges of racism at the dealership, which will make the dealership fold much more quickly, while the whites cannot do this.

            Your stories don’t necessarily prove that racism is alive and well in the world of car sales. They prove that dealers still use sleazy tactics, but one way to counter them is to claim a racist intent on the part of the dealership. Poor or uneducated whites don’t have that option.

    • 0 avatar
      Luke42

      @setsail26: “Of course certain ethnic groups have, on average, a lower credit score and thus get higher rate loans. How can you accidentally discriminate against someone?”

      Teasing this kind of thing apart is what real statisticians do for a living. It’s not rocket science, but it does require a lot of rigor and math.

      My wife uses this kind of math daily for her research, and is an aspiring university professor. Someone like her has probably posted a lecture about how it’s done to YouTube.

      Statistics are an approximate thing, so there always a chance that the answer is wrong. But statistical techniques also allow you to calculate a confidence level, and in some cases the chances of being wrong can be pretty low. But you always have to read carefully to know a) what question is really being asked, b) what the confidence interval means in the real world, and c) to decide how much the statistics should drive your decision. A court hearing might actually be a pretty good venue for sorting this out, since statistics are always a matter of degree (unlike theoretical physics, or the Boolean math that drives the computer science).

      • 0 avatar
        Landcrusher

        Statisticians very often get paid to get certain results, especially in academia.

        Court rooms a very bad places for sorting out this sort of thing. It’s great sport, but hardly worth noting the results.

        • 0 avatar
          Luke42

          Having spent a decade of my life in academia, I don’t see statisticians getting paid for much of anything….

          The biggest plausible source of bias was in the questions asked, which *is* something that a funding agency (which could be a private company, but is usually the NSF/NIH/DARPA) can pay for. So, as I said, you have read the question carefully.

          Deliberately biasing results is a breach of the ethics and culture of academia. It happens every now and then, but pretty much everyone with an ability to think ahead realizes that, without credibility, academia is nothing – so they don’t want to lose their only asset.

          Within that context, yes, it’s possible for a short sighted individual to bias results by making the statistical judgment calls in a systematically wrong way. And, yes, its possible for someone to deliberately torpedo their own career by being a liar. No, its not endemic.

          But a funding agency can ask the wrong question, and we’d all shake our heads and diligently work to the spec anyway. It’s in the contract, and that’s how “research for hire” is supposed to work in the era of privatization.

          • 0 avatar
            Landcrusher

            Dude,
            You aren’t doing it right. A local Prof collected about 50k for a study on red camera lights. It didn’t show what the Mayor wanted. The question was changed slightly, another sum, about 15k I believe, was sent, and all of a sudden those cameras saved lives.

            There are two sets of stats on those cameras. One set paid for by the camera companies and local governments wanting the things which show they are good. And every other study paid for by people not looking for a pay day which show they are on balance a non issue. Golden Rule, Dude.

            Get you some, if your conscience allows.

  • avatar

    Aside from the fact that I think “disparate impact” is a ridiculous threshold, this seems like it’s the government trying to protect consumer’s from their own inability to take rational steps to protect themselves. Car-Buying 101 is that you should have financing lined up BEFORE you go car shopping, preferably from a credit-union or other low-cost lender. If you walk into a car dealership with no alternatives to their in-house financing, of course they are going to take advantage of you.

    Of course, the easiest way to avoid this is to pay cash for your vehicles.

    • 0 avatar
      wsn

      I totally agree. When I was buying my first car in 2001, I arranged 6% from my university credit union. The car sales person almost couldn’t believe it could be that low (for the time, for a student anyway).

      Since then, I never needed a car loan ever again. I mean the historically low mortgage rate of 2.x% is there for a reason. That’s the rate I pay for everything I buy.

      • 0 avatar
        28-Cars-Later

        I think its above three if not low fours, but point taken and agreed.

      • 0 avatar
        Pinzgauer

        Got 1.5% on my last auto loan, sourced through Penfed. Great deal…

        • 0 avatar
          wsn

          The best part of not using the dealer’s own financing is that you can pay for the car “in cash” and the get the cash purchase discount. I got $4000 for my last purchase.

          • 0 avatar
            28-Cars-Later

            A friend had the reverse experience on a CPO car, she had to take the financing to get the better out-the-door price. The dealer didn’t care if she paid it off soon after (which she did), just had to take the financing and make two payments in order for those schmucks to get their bank bonus (or whatever).

          • 0 avatar
            Scoutdude

            You usually don’t get a “cash” discount for bringing your own financing since you’ve cut out their profit on the financing.

          • 0 avatar
            wsn

            Scoutdude, the dealer doesn’t need to know my financing. I paid cash. To the dealer, it’s just a check in the full amount.

            Home mortgage is where I borrowed money. I borrowed a comfortably large amount so that every other purchase is by cash.

          • 0 avatar
            thomm

            It doesn’t matter where the check is from…there is no “cash discount” like you think there is. Could be a certified check from a multinational bank or a brown bag full of 20′s. I am not sure how you taking it from a heloc makes any difference to what scoutdude said.

    • 0 avatar
      FreedMike

      In this case, disparate impact is stretching it. But there are cases where this sort of discrimination is clear cut.

      For example, let’s say that Bank ABC decides not to make mortgage loans for less than $100000 for people living in rural areas in the state of Iowa. Technically, this means all borrowers in the state of Iowa who want this loan are ineligible, but what is the primary racial and age makeup of rural folks in Iowa in houses costing that much? If you have lived there (and I have), then you know the answer to that is: old white folks.

      Or what about Bank XYZ, who wants to not loan money to anyone who wants to house more than one family in a single family home, when there’s no local law against doing so. Technically, that applies to everyone, but this practice is especially commonplace among Hispanics and people from southeast Asia.

      Or how about Bank 123, which won’t make loans to anyone wanting to buy a co-op in New York City – think white folks, particularly Jewish ones, might get turned down disproportionately? You bet they will.

      Technically, the INTENT may not be to discriminate against these borrowers, but they’re discriminated against nonetheless. It’s a more subtle form of discrimination, but it’s there. It’d be hard to prove it in this case, though.

      • 0 avatar
        Landcrusher

        It would be easy to prove discrimination if those left out where mostly black. If so,it’s assumed that racism is at the heart of it, and the money starts changing hands.

      • 0 avatar
        wsn

        @FreedMike “Technically, the INTENT may not be to discriminate against these borrowers, but they’re discriminated against nonetheless. It’s a more subtle form of discrimination, but it’s there. It’d be hard to prove it in this case, though.”

        Not all types of discriminations are wrong. If employers don’t discriminate based on ability to write/speak/program/etc. most companies would be bankrupt in one year and we are all back to stone age.

        To me, if the intent is based on race, it’s bad. But if the intend is just to make money and as a by-product there is racial difference, then there is nothing wrong. Certain race might as well work harder and smarter to break the trend.

    • 0 avatar
      Scoutdude

      I think they will almost certainly find the witch they are hunting for even if there really isn’t any bias. Many car dealers will try and pad their back end profit as much as they possibly can and some people who are not as educated on the current cost of money will bite and it wouldn’t surprise me if a greater number of those people foolish enough to bite are minorities.

      A number of years ago we were out as a family and more or less on a whim stopped by a car dealer in a rather expensive area. I wanted to see and drive the “new and improved” version of our then current family hauler. When we got back from the drive the F&I guy on duty presented a deal on the vehicle we drove, even though the one that I would have bought was on the showroom floor and more expensive than the one that was available to drive. The rate offered was more than double what my credit union was offering at the time for someone like me with a upper 700 credit score. I said xx% are you crazy? He replied well that is based on the average credit score we see and we might be able to do better. While we were gone they had also “appraised” my current vehicle and I looked at those numbers as well. No real surprise but the values they showed were for a base model with no options while mine was the top of the line trim with literally every single option available in that year.

      Of course I told them to give me my keys and that there was no way that I would buy a vehicle from them considering how they insulted me with their offer on my trade and interest rate.

  • avatar
    28-Cars-Later

    Sounds like a witch hunt.

    • 0 avatar
      Landcrusher

      I suspect the reality is that the car business, having more than its fair share of sociopaths and bullies, will easily be shown to pick on minorities. Some of this is due to bad actors, and a whole lot of it on unintended results of economic demographics and disparity of savvy.

      The Feds will more than likely punish all equally. This will raise the cost of borrowing on the least savvy the most. The rest of borrowers will pay a bit more as well. Some bureaucrats will pad their CV’s and some lobbyists will get the message that the right palms better get greased or it will get worse.

      Nothing will improve one bit except the sociopaths will get more clever and dealership employees will start trying to put the squeeze on more white males to average out their numbers.

    • 0 avatar
      FreedMike

      It’s been going on a long time. ECOA and FCRA have been in place for at least 40 years.

  • avatar
    seabrjim

    Which is why we should not ever check off boxes telling anyone what our race, or more correctly, our ethnicity is. Demographics are what they are, and I cant defend my own ethnic group. I left the hood because it was not a good safe place to raise my family. Just the facts. My credit score is 750-770 and I was never offered a high interest rate on a vehicle. Just a fact. Another witch hunt agreed. If you really care find out why Chicago is a war zone and kids die every day. Suddenly “they” dont care. If you dont like the rate offered go to a credit union.

    • 0 avatar
      Landcrusher

      This one is a favorite of mine. They ask you your race, but they have no box to check for those of us who don’t know because the state has hidden that information as part of the adoption process. (Along with medical history, which really sucks). It would cost me thousands in legal fees to get the truthful answer to the government mandated question.

      Seriously, it’s not as if there is no social stigma attached to being a bastard. What are they thinking? (Okay, they are thinking we will lie and there is no problem because we are lying bastards after all).

      And yes, I know many of you are now thinking you always knew I was a bastard…

      Beat you to it!

      • 0 avatar
        Chicago Dude

        “They ask you your race, but they have no box to check for those of us who don’t know”

        That’s because you don’t understand the question. They aren’t asking for the results of genetic testing. They want to know what YOU think you are. Tell them you are a Martian for all they care.

        …And when seabrjim claims that Chicago is a war zone, I am left with the feeling that he must have been from the south or southwest side. See http://www.urbanophile.com/2013/08/12/the-growing-public-safety-inequality-gap-in-chicago-by-daniel-hertz/

        “…the dark-green part of the city has a murder rate of 3.3 per 100k. In New York City, which is constantly (and mostly correctly) being held up as proof that urban safety miracles can happen in America, it’s 6.3. Toronto, which as far as North American big cities go occupies a fairy tale land where no one hurts anybody, had a homicide rate of 3.3 per 100k as recently as 2007. The North Side is unbelievably safe, at least as far as murder goes.”

        • 0 avatar
          Landcrusher

          First, lying on an application is a terminal offense. It’s worse than that actually, it’s a reason to fire for cause. So, it actually is an issue beyond the obvious problems. It also really irritates the Human Resources people if you don’t check the box that goes with what you look like because they can get busted if they are found to have any sort of error. If they changed the question to “apparent race” then it would be okay, but that would irritate racist minorities to no end.

          Second, if you take out the less violent parts of Chicago, you can’t simply compare that to the wholes of other cities. That’s going to be a misleading figure. I recommend you compare zip code to zip code or similar comparison.

          • 0 avatar
            redav

            In housing, if you do not check the box, the loan processor is required to fill it in for you to the best of his/her estimation.

            For race, it’s generally not that hard.

          • 0 avatar
            Landcrusher

            Right. I remember when the CNN cameras showed up on campus for the big story. An African American girl was allowed into a traditionally white sorority, Pi Phi, for the first time. Early eighties, btw. One of her parents was supposedly black, the other supposedly white. The whole time, no one noticed there was an older black girl already in the sorority. She had never said anything, no one had asked, and I guess they thought she was Hispanic.
            By the way. If you can reliably tell the differences between some of those races you have an amazing skill. Generally is not a great standard for racial statistics. You could eliminate a race from the local population by missing 2%. Or, as has been done before, you could make up races using that method, and lay the ground work for real blood being shed over imaginary race classes. Awesome, eh?

      • 0 avatar
        FreedMike

        I don’t know about car loans (haven’t taken one out in forever), but on mortgage applications, you can check “Do not wish to furnish this information.” Or you can make your best guess. You can actually pick more than one ethnicity as well. It’s up to you.

  • avatar
    Sceptic

    I do not remember ever seeing “Race” on a load application form. Not that I paid attention, but is there a requirement to report the race of borrower? If not, how would a lender provide this data to the feds?

    Is this all geared to getting more Obamacars on the road?

    • 0 avatar
      redav

      I don’t remember for auto loans, but it absolutely is there for mortgages. And, yes, it is required by law to be filled in. If you don’t, they processor has to do it for you.

  • avatar
    Sceptic

    I do not remember ever seeing “Race” on a loan application form. Not that I paid attention, but is there a requirement to report the race of borrower? If not, how would a lender provide this data to the feds?

    Is this all geared to getting more Obamacars on the road?

    • 0 avatar
      billfrombuckhead

      Ever hear about “ghetto tracker”? Ever hear about “redlining”?

      Also the dealerships know who they’re dealing with and tell the bankers. ” Oh these are nice “all American people” who live in this nice neighborhood or “I got these people at such and such interest rate can you help me make a little money and give you these “good” customers in return……..yada, yada, yada They keep an arms length but they know what dealers do and who their selling cars to , they have the profiles in their computers.

      They need to take dealer negotiated back end profit out of the business unless dealers are signing recourse. (basically co-signing)

      • 0 avatar
        Landcrusher

        In other words, they know the dealers may be charging higher rates to minorities, and they did nothing about it. Of course, there really wasn’t anything they could legally do about it, but now they have to pay anyway.

        The enforcement actions are merely thugocracy behind a very sheer veil of civil rights enforcement. All in all its about as ethical as pimping in the name of providing food and shelter to disadvantaged young ladies and their offspring. Only the pimp likely cares more about the ladies.

        Like I said earlier, it’s simple enough to catch the actual guilty parties. It’s just more work, less impressive on a resume’, and much less profitable for the treasury and the race baiting industry.

  • avatar
    setsail26

    Most of the answer here is buyer beware. This isn’t a race issue. This is a “making more money wherever we can” issue. You should know what loans rates are before you go shopping, it is pretty easy. I can guarantee that they would be equally happy taking money from a middle class white guy. You can’t say the system is holding you down when all the information is out there for all to see.

    • 0 avatar
      billfrombuckhead

      It’s not very easy otherwise so many people wouldn’t get ripped off. Of course they hose white people too but they target minorities and discriminate against minorities by zipcode, etc. Which is why Nissan settled out of court in the class action lawsuit. I’ve been in the car business a long time and I know. They get better at covering it up and they’re not as blatant as they used to be but I’d be willing to bet a lot of money when they crunch the numbers, minorities will be be proven to have been discriminated against.

      • 0 avatar
        Landcrusher

        By which you mean there will be evidence of minorities paying higher rates. That proves something, but not necessarily racism.

        If you have worked in the industry you know there are the bad guys, the guys doing as they are told, and the good guys. The number crunching will easily show all three equally guilty. Correlation is not causation in fact, but does seem the standard for social engineering. Those with good memory will remember when the progressives were pushing other crusades with similarly evil methods.

      • 0 avatar

        It’s really that difficult to fill out a couple applications at your local banks/credit unions/ect and see if they offer you a lower interest rate than the dealer? People are getting ripped off because they are unwilling to put a few minutes into making sure that their interests are being protected, either out of ignorance or sloth.

        If you come to a gunfight with a pillow, you probably are going to get shot.

        • 0 avatar
          billfrombuckhead

          Manufacturers obscure the figures with the endless 0.0% financing promotions, rebates, dealer money as well as financing negative equity.

          Many people don’t know they can join credit unions. Credit union banking is harder for many people than say Bank America or PNC and some people don’t want multiple accounts.

          • 0 avatar
            setsail26

            This is one of the more offensive forms of discrimination, and sadly insidious too: To believe that a certain group of people is not (smart, educated, experienced) enough to fend for themselves. To believe that a group of people who is not like us (cause of course we don’t need any help) can’t get along without government intervention. How sad to believe that we can take care of ourselves without help, as well as taking care of those others who aren’t bright enough to figure out they are being taken. No one can fix this problem except those getting the loans. If they educated themselves and told the dealer to f-off, the problem (if there is one) would solve itself.

          • 0 avatar
            billfrombuckhead

            The nanny state isn’t more offensive than some bigoted sales manager picking on groups of people he doesn’t like or some sociopath bankster targeting whole zipcodes to rip off.

          • 0 avatar
            Landcrusher

            Bill,
            I disagree. We can all choose not to associate with bad people in business. We at east have choices. One bad nanny state encounter can change everything and you can’t simply say no thanks to the government.

          • 0 avatar
            billfrombuckhead

            Almost the whole banking business is bad and I’ve sadly come to find the independent car business is deeply flawed by money launderers. Honesty is rarely rewarded in business and so called “free markets” are fixed. The “invisble hand” belongs to an inside trader.

            The smarter bad guys usually win. Balzac was right, “Behind every great fortune lies a great crime.”

            The only hope is well managed government regulation.

          • 0 avatar
            Landcrusher

            Bill,
            Your level of distaste for business is understandable coming from your background, but you forget that regulation only ensures sameness, not goodness. The banks are one of the most regulated businesses we have. Do you have a similar problem finding a good florist, hamburger, or hardware store? I don’t have a problem with my bank really anyway, though I think the subsidies need to be looked into. I don’t have an issue finding decent car dealers mostly either. Though its gotten tougher with these corporate groups buying them all up.

            Furthermore, do you really think there is some great crime behind every fortune? We have a furniture magnate here in Houston. I can’t imagine he somehow made his fortune ripping people off when everyone knows how he makes his money – low overhead, fair prices, same day delivery, and goofy commercials. Your accusing him of an unknown crime is totally hateful, bitter, and and frankly calls your character into question.

            I will stick with my argument since you haven’t really disputed it. I’ll take market choice over government monopoly or government favored oligopoly. Any industry full of cheats is living on borrowed time without government protection like car dealers have.

      • 0 avatar
        wsn

        @billfrombuckhead “Which is why Nissan settled out of court in the class action lawsuit.”

        One would settle out of court if one feels there is little chance to win, or doesn’t want to waste the time. It’s not necessarily admitting to wrong doing.

        It’s more like when you are confronted by an aggressive beggar, you would just give him a couple bucks. It doesn’t mean you did something wrong or he deserves it or you can’t physically beat him. It’s just not worth it.

    • 0 avatar
      FreedMike

      Agreed, buyer beware is good advice, but that doesn’t mean lenders can discriminate.

  • avatar
    CJinSD

    Anyone that reads this story and thinks it has anything to do with how people are treated is incompetent.

  • avatar
    highdesertcat

    I am forced to rehash an old pet peeve of mine: lending bias!

    “lending bias based on race” isn’t the only possible issue here. Lending bias based on old age is another!

    What should matter is the substantiated willingness and ability of a borrower to repay a loan. Not what race a potential borrower is or that some White guy who wants to finance a new car is older than dirt.

    Race is not an issue for me or my friends. Old age is! And this is where USAA, the Pentagon Federal Credit Union and NavyFed stand head and shoulders above the industry, if you can qualify for membership.

    They don’t discriminate!

    • 0 avatar
      billfrombuckhead

      Yeah, USAA and Navy Fed deserve a shout out. Only have done a couple deals with Pentagon and don’t remember how they went but have nothing but praise for USAA and Navy Fed.

      Most credit unions do do a good job but some are hard to deal with on used cars.

      • 0 avatar
        highdesertcat

        billfrombuckhead, many people who complain about “lending bias” cannot qualify for membership in USAA, Pentagon or NavyFed (because they never served).

        It doesn’t take an MBA to recognize that the APR they are offered by other lenders is not a very good one.

        And most people don’t need a Spreadsheet to understand that they are better off taking the money out of their savings account and repaying themselves.

        My experiences with Pentagon have been excellent when I was in Germany for eight years, and I only had four or five stripes back then.

        I became a member of USAA in 1980 and have ALL my financial stuff with them; House/Life/Car/Checking/Savings/CreditCard, with one DirectDeposit.

        My other DirectDeposit accounts are at other banks and a credit union, because I don’t believe in putting all my eggs in one basket.

    • 0 avatar
      FreedMike

      @highdesertcat:

      Lenders are expressly forbidden to make lending decisions based on certain prohibited bases, and age is definitely one of them. If a lender has denied any extension of credit to you due to your age, then that lender is breaking the law – period.

      There are financial penalties for doing so.

      You need to report this to the authorities.

      • 0 avatar
        thomm

        Yeah…I argued this with him before using my past experience as an f&I managerand escrow officer using an example of a 98 year old borrower buying a car from my dealership. She got a better rate than a younger person actually since I called the lender and got them to drop thier s tier rate by half a point because she was my favorite customer when I was in sales and had that car totalled in front of her house by someone running from the cops.That is something people who insist on getting thier own financing forget.The f&I department can usually beat thier credit union rate if you give them a chance. Look at it this way…an individual does a loan with a lender ever few years…a dealership can do hundreds in a month and have access to special rate sales, discount coupons, and favors that they don’t. My favorite is the one guy who wouldn’t let me try, but had to sign a hold contract with us since he failed to get the check as a certified or cashier’s check. I beat his credit union by .75% and couldn’t understand how I could and claimed the contract was fraudulent until I got the lender on the line to confirm that was the case. Hell…you don’t even have to go through approval with your credit union prior to going in. Just let them know who you are with and they can look up the rates that that particular cu is offering that month and try to beat it.

        • 0 avatar
          highdesertcat

          thomm, I’m not doubting anything you argued.

          The situation as I presented it is that many old people I know have had unfavorable experiences with various lenders.

          Among them was my wife’s dad, if you recall, when he bought his new Suburban.

          From your perspective, the way things ought to be according to law do not necessarily translate the same way into the real world where I live.

          From my perspective, based on the real-life experiences of people I know personally, getting a new car loan is not always as great an experience for the borrower. Nor are the rates always the same as for younger people borrowing the same amount of money.

          However, I’m not going to test your theory by going out and getting a loan. If I don’t have the money for it, I don’t buy it.

      • 0 avatar
        highdesertcat

        FreedMike, this isn’t an issue for me but it has been brought up around our poker table when a bunch of old codgers get together to play Texas Hold’m on Wednesday nights.

        It isn’t that old codgers can’t get a loan. They don’t get the best rate because of their age, even though most of them have more than enough cash money hoarded away in their bank/credit union accounts to cover a loan several times over.

        Often they are forced/pressured into taking on “loan insurance” in the form of a Term Life Insurance policy carried in favor of the lender, or the APR is substantially higher than for a younger person borrowing the same amount.

        Many of these guys want to conserve their cash money to pass on to their heirs by financing that new car or truck. What they are often offered by a lender is a loan that is not as favorable as the same loan for a younger person with a longer anticipated life span, but with less means.

        So, many old codgers opt to pay cash for that new vehicle, or, if they qualify, go through USAA, Pentagon or NavyFed, where there is NO discrimination.

        I haven’t financed anything since the early 1980′s. If I don’t have the cash money for it, I don’t buy it.

        • 0 avatar
          thomm

          If that is the case, it sounds like there is widespread federal violations going on in your area. Pressured to buy a third party product on the back end does not equal required to buy. If the loan is approved, it is approved…back end products be damned. Also, just because a person has the cash on hand to pay off the loan does not equal a good rate in today’s credit score driven lending. If credit has not been used in a long time or very little for many years, the FICO can bw artificially low, if not incalculable so they become a credit ghost like someone who has no to very little history. I have worked in a 50 state lending environment and have never encountered these practices at the origination level…what happens at the local level within the local lending offices when they prep the final paperwork may be a different story. This is why usaa, usncr, and other natoinwide cu’s are not doing this to them. Your local lending offices seem to be steeped in a deeply corrupt culture just asking for federal investigation by the federal protection bureaus. These practices would disgust me personally as a professiona, so I am glad I have only done final f&I in states that have such a tight regulatory environment that the higher ups wouldn’t consider doing these things since the state would be on them like stink on sh-t. Plus, we also video-taped all of our car signings to cover ourselves and also to provide proof if any complaints arose at any level.With today’s small, cheap digital camcorders, that might be a good idea for a custoner to do…record your own signing…make sure you are folliwing your state law regarding recording and notification. If the business has a problem with it you can take business elsewhere. Personally, I wouldn’t mind if a customer came into my office and made the request.

          • 0 avatar
            highdesertcat

            I think it is just par for the course for most car dealerships. After all, the burden of proof is on the injured party (the borrower) and how is the potential borrower going to prove that they were discriminated against since there is a rate for every swinging dick that applies for a loan?

            This is not unique to my area alone. I had four brothers who were in the new car retail business as dealers for more than 30 years, at six locations in four states, from CA to AL. And they had financing rates for each individual borrower.

            They didn’t do anything illegal but they also didn’t shoot each potential customer the same rate either.

            People can always take their business elsewhere. But many people are reluctant to go through the procedure of establishing or cultivating a new business relationship from dealer to dealer.

            I used to teach College Undergraduate and University Graduate level courses in Marketing, Advertising and Salesmanship, and when it comes to financing, it is the icing on the cake!

            Others have already suggested that the best approach to take is to be pre-approved. My personal faves are USAA, Pentagon and NavyFed and I have steered all my kids and grand kids in that direction. Never had a problem.

  • avatar
    mkirk

    Oh yes, let’s get the government to ensure that it is fair and everyone can qualify for a loan. It worked great for the housing industry.

    • 0 avatar
      wsn

      Exactly.

      To add, if certain lenders choose to racial profile people, other lenders can make a huge profit by lending money to these competent black borrowers. Imagine the size of the market.

    • 0 avatar
      FreedMike

      You may want to ask yourself why the government has been involved in this, which it has been for at least 40 years now. The reason is that banks didn’t police themselves, and people were being blatantly discriminated against.

      The idea that financial institutions will just police themselves when it comes to this sort of thing, and somehow the “market will regulate it,” is nothing more than a fantasy. They won’t.

      • 0 avatar
        Landcrusher

        All I ask is that the cure not be worse than the disease. Is that so hard?

        • 0 avatar
          billfrombuckhead

          One man’s disease is another’s cure. Some wish we could go back to the good old days of the 1950′s, women, minorities and gays, not so much.

          • 0 avatar
            Landcrusher

            No one is saying to go backwards, Bill. Only asking that the solutions are less full of their own problems. Robbing Peter to pay Paul is a bad idea, and not justified just because Peter is rich and Paul got mistreated by one of Peter’s peers.

  • avatar
    kvndoom

    Eh… Methinks this would go away entirely if people just secured financing before they walked into a dealership.

    …or learned how to save…

    …or learned how to say “no” to what they want and “yes” to what they need…

    I have signed for some seriously dumb loans in the past. Nobody made me. Now I’m a little older and a lot wiser, and it doesn’t happen.

  • avatar
    billfrombuckhead

    There may be lots of laws on the books but there’s hardly anyone to enforce them. Smaller dealers get away with a lot as long they’re not raising a bunch of burning flags, you really have to get a bunch of people upset for good reason to see anyone from the Federal or state governments. Bigger dealers tend to attract lawsuits because they have resources to go after or because the manufacturers will press them to not have problems.

    There’s a lot of discrimination in the car business. I’ve had sales managers tell me not to wait on Asians or not to spend much time with them. I learned to sell them cars and if I sold one, I actually would get the whole family or neighborhood especially because they would get run off many of the other car lots.

    Many Americans would be upset to know that back at the height of the BHPH business illegal Mexicans were considered the best customers, then legal Mexicans, then middleclass white males,then middleclass white women, then poor whites and middleclass blacks with poor black women at the bottom of the pecking order.

    • 0 avatar
      Landcrusher

      Bill,
      You have made plenty of comments here, and I get that you had a lot of experience in the business. My experience was working with dealerships. I sold to them, installed computer systems, and trained them for weeks at a time in the dealership. I got to see a lot of them.

      I saw the sorts of things you speak of. Mostly, that sort of thing happened at places that were otherwise EXACTLY like you would expect. They cheated customers, employees, manufacturers, and vendors. Stole from dealer. Drank on the job. Etc. There were also pleasant dealerships as nice to work in as any other place.

      I don’t know why you felt you had to put up with all the crap. I have worked for toxic people, and since I have gotten older and wiser, I learned not to put up with it.

      I hope you won’t do so any longer either. I suspect some lawyers would be real happy to get info on the bad actors you worked with. If you have any recent examples, maybe you could hook the victims up with info to sue the people who actually hurt them so the rest of the industry and the country doesn’t have to take the hit.

      One thing that really blows my mind though. How much of this activity is being done to blacks by other blacks? Half the time I shop for cars the salesman I get is black. Many of the dealer employees i worked with were black. What’s with that?

      Also, while i think about it. Over a third of my managers had been black before I went into aviation which is wildly unsegregated. I have only witnessed this stuff in client businesses, never in my own company. None of my managers has shown racism dating back to my first job in 79. How did you put up with working with such people?

      • 0 avatar
        billfrombuckhead

        I haven’t worked in franchise dealers in over a decade because they mostly have been taken over by corporations which bring their own sort of corruption and lower the pay and benefits. I hope the new car business has improved under the threat of government actions, lawsuits and manufacturers gaining more control over their franchises. I’ve been in the independent car business for awhile but that has also turned out to be more corrupt than I ever imagined.

        I think the banking industry has proven to be corrupt beyond anyone’s wildest dreams and I’m sure when they crunch the numbers they’ll find systematic discrimination by zipcode and collusion between dealers and captive lenders to charge the vulnerable excessive profits.

        Just one more thing, bigotry is not rational, so market solutions don’t work very well at the local level.

        • 0 avatar
          setsail26

          Again you are saying that some people are too dumb to avoid being screwed. If you are being screwed, leave. Find somewhere else. Cars are a commodity. Loans are a commodity. There will always be sleazeballs in every industry. People just need to find the information to know when they are being taken. You even said that the laws don’t help (operating in the gray area). If someone tells his neighbors Big Bob at the buy here pay here is discriminating, you can bet his neighbors will go somewhere else. If the buyer just wants something and doesn’t care how he gets it, how can that be the dealers fault?

          • 0 avatar
            billfrombuckhead

            It was under pressure of laws that things got better than they used to be and if these manufacturers don’t want to be in court and in the press, they’ll police their dealers and loan people to make it safe for even the dumbest people to get a fair deal out of their captive finance depsrtments,

      • 0 avatar
        billfrombuckhead

        i’ve been in court against crooked car dealers and at some point your lawyer will tell you “this guy’s a crooke but he sure is good at staying in the “grey area”.

        The cops can’t target specific bars to park across the street to give out DUI’s but they can have a computer program that shows where they give out the most DUI’s which just happens to be at the intersection of Peachtree and Piedmont 2 blocks up from Johnny’s Hideaway.

  • avatar
    Moparman426W

    Could someone at TTAC please unsubscribe me from the site ? I contacted the site a couple of times and asked to be removed before. Thank you.

  • avatar
    Landcrusher

    I have posted all over this thread, but I want to restate my suggestion that state level sting operations such as those directed at realtors would work better than these litigation by math schemes if the real desire is to reduce racism in lending.

    Real estate is a good example. Social scientists agree that people will not naturally integrate in housing choices. Quite the opposite, if you started with perfect diversity, over time, races would segregate by choice. You could easily prove steering discrimination by realtors using statistical results as is being done here even if the realtors were being particularly guarded and steering for integration on purpose!

    However, I think the real estate business is in better shape on this issue than car dealers. The realtors know there are active sting operations out there, and the bad actors will be the ones busted, no the banks or the companies, but the individual ad actors. They therefore have a strong incentive to conform.


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