Honda Finance agreement with CFPB: Whatês next?
What does the well-publicized consent agreement between American Honda Finance Corp. (AHFC) and the Consumer Financial Protection Bureau (CFPB) and Department of Justice (DOJ) mean for dealers?
To recap: Without admitting any wrongdoing, AHFC agreed to pay $24 million to minority customers for alleged discriminatory pricing on auto loans. A statement from the CFPB said that thousands of minority buyers paid an average of $150 to $250 more for their loans from 2011 to 2015.
As part of the agreement, AHFC must lower reserve payments to dealer credit arrangers from 2.25 percent to 1.25 percent above the buy rate for loans of 5 years or less, and 2 percent to 1 percent for longer loans. More significantly, the head of the DOJês Civil Rights Division, Vanita Gupta says, We hope that Hondaês leadership will spur the rest of the industry to constrain dealer markup to address discriminatory pricing.
Itês not the push for flat rates that had previously been reported as a preference of some CFPB regulators. But the statement does put other captive finance companies on public notice of the agencyês preference for lower limits on dealer reserve. The CFPB does not regulate dealers, but it does regulate lenders.
In explaining the concept of dealer reserve in a statement for the media, the CFPB says, Markups can generate compensation for dealers while giving them the discretion to charge consumers different rates regardless of consumer creditworthiness.
NADA responds that dealer discretion in setting the consumerês finance rate is crucial. This enforcement action artificially constrains the right of consumers to benefit from interest rate reductions of up to 1 percent of the APR on their next auto loan, says NADA Chairman Bill Fox.
Adds Damon Lester, president of the National Association of Minority Auto Dealers, Todayês restriction of consumer rights is entirely unnecessary because a better alternative exists the Fair Credit Compliance Policy & Program recommended by our dealer associations. That alternative, which is modeled on prior Department of Justice consent orders, fully addresses fair credit concerns without displacing the ability of consumers to obtain discounted rates.
AIADA was also part of the joint association statement, saying Everyone in our industry is mystified as to why the government continues to overlook its own common sense approach in favor of the anti-consumer methods forced on Honda Finance.
Honda will pay $1 million to fund a consumer financial education program focused on consumer auto finance and designed to benefit ethnic minorities.
As DOJ concludes, The settlement allows the lender to experiment with different approaches toward lessening discrimination and requires it to regularly report to the [Justice] Department and the CFPB on the resultsÄDownload Bulletin PDF