When you go to buy a car, you expect your auto financing to depend on your income, your credit, and other money-related issues. But what about your race? A study released earlier this year shows that color directly affects how much you will pay for a car if you get your financing from car dealerships.
Getting auto financing isn’t easy for anyone. If you go to the car dealership you should be prepared for confusing finance terms, dealer markups, and upselling. But a study released in January 2018 shows that for minority car buyers, the challenges don’t stop there. The report, “Discrimination When Buying a Car: How The Color of Your Skin Can Affect Your Car-Shopping Experience” was published by the National Fair Housing Alliance (NFHA) and it shows racial discrimination is raising the rates for non-white consumers by auto dealerships.
Racial Discrimination in Lending is Illegal
Before digging into the details of the report, remember that the federal Equal Credit Opportunity Act (ECOA) makes it illegal for creditors to discriminate between applicants based on race, color, religion, national origin, sex, marital status, or age. The law stands for the idea that a person should not be charged more to borrow the same money because of these protected traits. Still, that is exactly what the NFHA’s report revealed is happening.
NFHA Report Tells Stories of Racial Discrimination
To test whether racial discrimination was actually happening in car dealerships, the NFHA paired up one white tester and one non-white tester. Each of the eight pairs visited a franchised car dealership for some of the most popular car brands in America. The dealerships were located in eastern Virginia. Their mission was to and get purchase and auto financing information on the same car, and then compare notes. Among each pair, the white tester was the worse candidate on paper: they had a worse credit score, made less money, and were otherwise less creditworthy than their non-white partner.
The report found that racial discrimination is pervasive among the car dealerships tested:
- 62.5% of the non-white testers received higher cost pricing options.
- 75% of the white testers were offered more financing options.
- On average, the non-white testers would have paid $2,662.56 more over the life of the loan for the same vehicle.
The non-white testers also reported being disrespected and being subjected to other forms of economically disadvantageous and bias treatment. For example:
- White testers were offered rebates
- White testers were offered help to bring down interest rates
- Non-white testers were more often presented with bundled services or other, more costly purchase options
Racial Discrimination in Auto Financing Makes a Tough Situation Worse
Racial discrimination is illegal, and clearly costly. It also makes the real-world economic situations of many non-white families even worse. Jessica Aiwuyor of the NFHA explains:
“People of color are more likely to live in areas that do not have a mainstream bank, making access to fair auto dealer financing more important for these borrowers. These same consumers are also more likely to live in areas that do not have reliable transportation, which makes the availability of fair and quality auto financing that much more vital. Disparities in access to credit and transportation reflect historical discrimination in the credit marketplace and the perpetuation of segregation that has created an enduring wealth gap in America.”
The Consumer Financial Protection Bureau (CFPB) has been addressing racial discrimination in lending for the last several years. It has sued and settled with banks and auto financing arms of vehicle manufacturing companies for violating the ECOA, including:
- Ally Financial and Ally Bank for $98 million in 2013
- Honda for $24 million in 2015
- Toyota for $21.9 million in 2016
But the NFHA study shows that those settlements haven’t done enough to force industry-wide change in the way minority borrowers are treated, or the lending options made available to them. It will take tough regulation to enforce the ECOA and other laws to protect non-white consumers from systemic racism within the auto financing system.
Dani K. Liblang is a consumer protection attorney at The Liblang Law Firm, PC, in Birmingham, Michigan. If you believe you have been the victim of predatory lending practices, contact The Liblang Law Firm, PC, for a free consultation.