Honda Motor Co.'s financial arm has been identified by the government to have discriminated minority customers in their auto loans. Borrowers who were from Black, Asian and Hispanic races were given higher interest rates than white debtors, as per Business Insider.
The investigation of American Honda Finance Corporation, a branch of Honda (HMC), by the federal government started in 2013 for disregarding equal lending laws.
CNN revealed, the Consumer Finance Protection Bureau discovered borrowers' credit capability did not cover for raising the loan rates. It disclosed the AHFC made the colored sector pay $150 to $250 more than its white counterparts.
Honda Finance, which grants loans to clients that finance car procurement through dealerships, granted retailers to increase the rates, which led to the discrimination, said the bureau.
The Japanese owned company's finance arm is one of the biggest auto creditors in the U.S., and the concerned borrowers took on loans between January 2011 up to July 2015.
On Tuesday, the company responded to the Justice Department's accusation by a settlement amounting to $24 million to a fund for customers who were overcharged. Another $1 million will cover for a consumer-education campaign. Honda will not provide payment for any civil penalty.
According to Nasdaq, the AHFC stated that it does not agree with the Consumer Financial Protection Bureau and Justice Department "regarding the methodology used to make determinations about lending practices, but we nonetheless share a fundamental agreement in the importance of fair lending."
In response, federal representatives spoke that this is the first arrangement where a car lender has conceded to change its lending practices and hoped that other companies will make an example out of Honda's decision.
Vanita Gupta, who heads the civil rights unit of the Justice Department, said, "We are looking at the entire spectrum of the auto-lending market." She further stated that discriminatory methods in automobile loans is a "pervasive problem", while declining to pinpoint specific firms.
She also commented that Honda's new lending rectification system, "balances fair compensation for dealers and fair lending for consumers. We hope that Honda's leadership will spur the rest of the industry to constrain dealer markups to address discriminatory pricing."
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