A set of eight tests at auto dealers in Virginia found that justover half the time white buyers were offered better financing thannon-whites even though the white buyers had worse credit scores, aconsumer group reported Thursday.

|

The National Fair Housing Alliance (NFHA) based in Washington,D.C., said its investigation shows the persistence of practicesthat create and sustain racial and ethnic wealth gaps in the UnitedStates.

|

The test design was modeled after one long used in the housingmarket. For each pair of tests, the shoppers were the same genderand close to the same age. In seven tests, the non-white shopperhad a higher income. In the eighth test the non-white tester had alower income, but also a lower debt-to-income ratio.

|

In five cases, the non-whites ended up with offers that wouldhave had them paying more than their white counterparts.

|

“This report is disheartening but not surprising,” said MikeCalhoun, president of the Center for Responsible Lending. “Years of datashow that unfair, racially discriminatory treatment of consumers isa growing problem in the auto lending industry. This is especiallytrue for low-income families of color, where a car is often one ofthe biggest purchases made by a household.”

|

Calhoun said the report shows the need for the Consumer Finance Protection Bureau to maintainits indirect auto lending guidance designed to preventdiscriminatory pricing in auto lending.

|

Pooled together, the tests show that non-whites would have paidan average of $26,168 in total borrowing costs, which was $657 or3% more than offered to the white testers.

|

The difference is not great, but the NFHA researchers said thesharply better credit profiles of the non-white shoppers shouldhave resulted in significantly lower borrowing costs for them.

|

The average non-white income was $55,313, or 30% more than thewhite testers, and non-white credit scores were 736 compared with706 for whites.

|

In one test, both shoppers had credit scores over 800. Incomewas $60,000 for the non-white and $80,000 for the white, but thedebt-to-income ratio was only 1% for the non-white shopper, whileit was 38% for the white.

|

In that case the non-white shopper was offered a deal that wouldhave had her paying $31,125 over 75 months at 6%, while the whiteshopper was offered $28,848 at 2.89% over 72 months. Both womenwould have paid $3,000 down.

|

Under President Obama, the CFPB and the U.S. Justice Departmentconducted detailed investigations of indirect car loans that foundpatterns of discrimination that led to settlements with theindirect finance arms of Toyota, Honda and others.

|

Under President Trump, both agencies are expected to be lessaggressive towards lenders.

|

The top recommendation in the NFHA's 35-page report was thatstate attorneys general combine their powers to enforce stateanti-discrimination and consumer protection laws, includingbringing lawsuits against offending companies for discriminatorypractices.

|

“Coordinated AG action can result in sweeping industry changes,”the report said. “Coordinated AG efforts would also bring nationalawareness to discrimination in auto lending and unfair, deceptive,and abusive dealer rate mark-ups.”

Complete your profile to continue reading and get FREE access to CUTimes.com, part of your ALM digital membership.

  • Critical CUTimes.com information including comprehensive product and service provider listings via the Marketplace Directory, CU Careers, resources from industry leaders, webcasts, and breaking news, analysis and more with our informative Newsletters.
  • Exclusive discounts on ALM and CU Times events.
  • Access to other award-winning ALM websites including Law.com and GlobeSt.com.
NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.

Jim DuPlessis

A journalist for decades.