NADA Responds to Auto Financing Discrimination Study

NADA Responds to Auto Financing Discrimination Study

NADA responded promptly to a recent Associated Press (AP) story headlined, –Blacks Pay Higher Auto Loan Rates.” The article cites a 2004 study by the Consumer Federation of America (CFA) that is based on data from the Federal Reserve.The negative AP story has been picked up by a number of news outlets around the country, including The Washington Post, which in a May 10 –Color of Money” editorial by financial writer Michelle Singletory, published the article –Minorities, the Auto Loan Losers.”

According to CFA, blacks paid a typical auto loan rate of 7 percent for new cars, compared with a rate of 5 percent for whites and 5.5 percent for Hispanic borrowers in 2004. –And blacks were more likely than auto buyers in general to have auto loan rates higher than 15 percent. For used car loans, 27 percent of blacks who buy cars were charged interest rates of 15 percent or more. And blacks were three times as likely as whites ã 27 percent to 9 percent ã to have auto loan rates at least that high,” the AP reported.

The study also found that Hispanics only paid 5.5 percent for new car loans as opposed to whites who paid 5 percent on average. In addition, the study noted that 19 percent of Hispanics had used car loans greater than 15 percent, versus 9 percent of whites with higher rates.

The views of NADA and the American Financial Services Association were included in the story, providing some balance to the otherwise negative slant. However, NADA sent the following talking points to state and metro dealer associations to share with dealers who may receive a call from a news reporter following up on this story.

Talking Points

· You can’t draw legitimate conclusions from the data because it’s incomplete. It does not contain the necessary information regarding a host of variables that have direct and substantial impact on the rates, including, most notably, the borrower’s creditworthiness and prevailing rates at the time the credit was issued.Without this data as part of the analysis, any conclusions or implications drawn could be misleading

· What’s important to keep in mind is that consumers should do their homework and shop around. It speeds up the process, makes for a smoother transaction and is more likely to result in a satisfied customer. Auto financing is a very competitive business. If a customer is not satisfied with the first interest rate offered, he or she may be able to refinance elsewhere without penalty.

· NADA has launched a national consumer education campaign aimed at increasing public understanding of auto financing. With this in mind, NADA has joined with the auto financing industry in a coalition known as AWARE (Americans Well-informed on Automobile Retailing Economics). We recommend that consumers go to the AWARE website www.autofinancing101.org for comprehensive information dedicated exclusively to understanding auto financing.