Negotiating a Car Loan

AuthorDaniel A Edelman
Negotiating a Car Loan
Consumers interested in financing a car should inquire as to available rates on their own from at least
one lender and not just trust or rely on the car dealer. This is because the dealer may not give you the
best rate. Dealers are legally allowed to “mark up” the rate offered to the consumer and keep part of the
finance charges.
There have been persistent complaints that dealer mark-ups are influenced by the race, ethnicity, and gen-
der of the consumer. In December 2013, Ally Financial Inc. and Ally Bank (the new name of General Motors
Acceptance Corporation) settled a fair-lending complaint filed by the Consumer Financial Protection Bureau
(CFPB) and the Department of Justice (DOJ) (CFPB No. 2013-CFPB-0010; United States v. Ally Financial,
Inc., 13cv15180 (E.D.Mich., Dec. 23, 2014)). The CFPB and DOJ alleged that Ally published a “buy rate” to
dealers that reflected the minimum interest rate at which Ally would purchase a retail installment sales con-
tract, but Ally would permit dealers discretion to mark up the buy rate to a higher rate in the retail installment
contracts they entered into with auto buyers. Although Ally limited the dealer markup to 2 to 2.5 percent,
it did not monitor whether impermissible discrimination occurred through the discretion that its lending
policy and practice gave to dealers. The CFPB and DOJ estimated that over a period of thirty months, about
100,000 African American consumers were charged approximately 0.29 percent more in dealer markup than
similarly situated white consumers, resulting in an average overpayment of $300 in interest over the life of
the contract, and that about 125,000 Hispanic consumers were charged approximately 0.2 percent more in
dealer markup than similarly situated white consumers, resulting in an average overpayment of over $200 in
interest over the life of the contract. Ally agreed to pay $98 million in reimbursement and penalties.
In July 2015, American Honda Finance entered into a similar consent decree resolving simi-
lar allegations made by the CFPB and DOJ. According to the CFPB, Honda’s past practices resulted
in thousands of African American, Hispanic, Asian, and Pacific Islander borrowers paying higher
interest rates than white borrowers for their auto loans, regardless of their creditworthiness. As
part of the consent order, Honda agreed to change its pricing and compensation system to substan-
tially reduce dealer discretion and minimize the risks of discrimination, and it was ordered to pay
$24 million in restitution to affected borrowers (
Edelman53574_Ch006.indd 19 22/05/17 10:24 AM

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