Congress Eases Rules Against Racial Discrimination in the Auto Loan Market

The color of your skin can make buying a car more expensive, decades of experiments and data show.

As a result, the Consumer Financial Protection Bureau put out a notice in 2013 reaffirming that discriminatory auto lending is illegal.

The House voted Tuesday to undo that guidance, weeks after the Senate took the same action. The measure now moves to President Donald Trump, who is expected to sign it into law.

Car dealers often work with third-party lenders, such as banks or credit unions, to provide financing options to consumers.

Once that “indirect” lender offers the car dealer an interest rate on an auto loan, the dealer is often allowed to mark up that rate to the buyer for additional compensation. Such dealer discretion has resulted in discriminatory lending practices, research shows.

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Just this year, the National Fair Housing Alliance, a collection of organizations that fight against housing and other types of lending discrimination, launched an investigation into the auto loan industry by sending white and nonwhite “testers” into car dealerships in Virginia.

More than 60 percent of the time, the nonwhite individuals who were more qualified than their white counterparts were given more costly options. As a result, people of color who faced discrimination would pay an average of $2,662 more over the length of the loan.

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A spokesman for The National Automobile Dealers Association, a trade group, said claims that the removal of this guidance would encourage discrimination were “completely baseless.”

“America’s franchised auto dealers strongly believe that every customer deserves to be treated fairly, and that there is no room for discrimination of any kind in auto retailing — period,” said Jared Allen, senior director of media relations.

The Consumer Financial Protection Bureau’s 2013 guidance explained how the Equal Credit Opportunity Act — which prohibits lending based on an individual’s race, religion, sex or age — also applied to the auto loan industry.

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A spokesman for Honda said that while it did reach a settlement with the CFPB, it disagreed with the way in which the government tested for bias.

“[We] firmly believe that our lending practices have been fair and transparent,” Chris Martin of Honda said. Fifth Third Bank and Toyota did not respond to requests for comment.

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In a press release, Sen. Jerry Moran, R-Kan., one of the authors of the legislation to reverse the guidance, said doing so would “return a sense of stability to the auto marketplace, ultimately providing a path to lower costs for all car purchasers.”

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