More than 40 years after fair credit laws, racial discrimination continues
Toyota Motor Credit to pay $21.9 million for discriminatory practices
By Charlene Crowell
Each year observances and events offered in recognition of Black History Month offer opportunities for people of all colors and locales to reflect on the unique experiences of Blacks both past and present. Many of the annual observances chronicle progress since the passage of laws adopted years ago to ensure that Black citizens and others of color would enjoy all freedoms and benefits that come with citizenship.
Yet in recent months, too many headlines have illustrated how multiple forms of injustice still plague Black America. Whether from Ferguson to Flint or Chicago to Cleveland, the barrage of assaults remind us how far our journey towards justice has yet to go.
And when it comes to credit and financing, racial disparities remain despite a 42-year-old federal law guaranteeing fair treatment in lending. Four decades ought to be long enough for businesses and corporations to accept and comply with the law of the land.
The Equal Credit Opportunity Act (ECOA) of 1974 requires financial institutions to “make credit equally available to all creditworthy customers without regard to sex or marital status.”
It is illegal for “any creditor to discriminate against any applicant with respect to any aspect of a credit transaction on the basis of race, color, religion, national origin, sex or marital status, or age.”
The above language seems clear and yet, just a few days ago another financing arm of a major auto manufacturer reached a multi-million dollar settlement with the Consumer Financial Protection Bureau CFPB) and the Department of Justice (DOJ) for its failure to treat consumers of color fairly.
Toyota Motor Credit agreed to pay $21.9 million in restitution to thousands of Black, Asian-Americans and Pacific Islander borrowers. These borrowers paid higher interest rates than white borrowers for their auto loans due to the lender allowing dealers to mark up a borrower’s interest rate for compensation. Toyota Credit also agreed to change its pricing and compensation system to significantly reduce the dealer’s ability to manipulate the interest rate.
“No consumer should be forced to pay more money for a loan because of their race or national origin,” said U.S. Attorney Eileen M. Decker of the Central District of California. “This settlement resolves our claims by providing compensation for affected consumers and seeking to ensure that future loans funded by Toyota reflect equal terms.”
Toyota is only the latest perpetrator, extending a series of actions by law enforcement to address discrimination in auto lending.
Last May, Evergreen Bank Group, based in Oak Brook, Ill. settled charges that it violated the ECOA by charging Latino and Black borrowers higher interest rates on motorcycle financing. The bank settled the claim by paying $395,000.
Months later in July, Honda Finance Corporation agreed to pay $24 million on similar violations.
In September, Ohio-based Fifth Third Bank agreed to pay $18 million and cooperate with an independent administrator appointed to identify affected borrowers and distribute restitution.
The largest of the recent cases came two years earlier when in 2013 Ally Bank agreed to pay $98 million in civil penalties and restitution. This enforcement action found that approximately 100,000 Black borrowers, 125,000 Latino borrowers, and 10,000 Asian/Pacific Islander borrowers paid higher rates for their auto loans than similarly situated white borrowers. Even more troubling, just one year later Ally paid an additional $38 million to borrowers for discrimination that occurred after the initial settlement.
Despite progress resulting from these recent enforcement actions, discrimination in the market remains, says Chris Kukla, a senior vice present with the Center for Responsible Lending (CRL).
“The terms of the settlement continue to move in the right direction,” noted Kukla. “However, dealer discretion to mark up interest rates remains an unfair and hidden practice with continued potential for discrimination. The only effective way to completely eliminate the discriminatory impact and the un-fairness of hidden dealer interest rate markups is to end the practice altogether.”
At one trillion dollars, auto lending is the third-largest source of consumer debt, behind that of mortgages and student loans. CRL has also determined through survey research that even though Black and Latino consumers make more of an effort to negotiate auto interest rates than others, they still wind up paying higher rates.
“Law enforcement must continue to vigilantly and swiftly act when they uncover discriminatory or unfair lending as they have done with other enforcement actions,” continued Kukla. “The recent news that Ally paid an additional $38 million in restitution to compensate borrowers harmed after Ally’s settlement with the Consumer Financial Protection Bureau and the Department of Justice shows that the issue of discrimination due to car dealer interest rate markup is real and needs to end.”
Here’s hoping this Black History Month fair-minded people of all races and ethnicities will better understand that the struggle for justice must continue.