Honda Financial Services Customer Service The Department of Justice and the Consumer Financial Protection Bureau today announced a groundbreaking settlement with American Honda Finance Corporation, doing business as Honda Financial Services (HFS), over claims that it engaged in a pattern or practice of discrimination against thousands of African-American, Hispanic, and Asian and Pacific Islander borrowers in auto lending. The settlement includes $24 million to be paid to borrowers who were victims of the company’s violations of the Equal Credit Opportunity Act and will require Honda to significantly limit dealer markups on auto loans.
As an indirect auto lender, Honda sets a risk-based interest rate, known as a “buy rate,” that it conveys to car dealers when they help consumers complete their loan application. Then, at the point of sale, car dealers often add a different interest rate that is higher than the buy rate, which they can charge to earn additional compensation from Honda for their sales. The difference between these rates is called a dealer markup, and it allows dealers to vary their prices based on a borrower’s objective creditworthiness.
The settlement will require Honda to significantly limit the amount of dealer markup, ensuring that all borrowers receive a consistent price based on their creditworthiness and other objective criteria. In addition, the company will make a significant investment to improve its monitoring and compliance systems and ensure that all of its lenders comply with the law. Finally, the company will pay $1 million to fund a consumer education program focused on consumer auto financing and report to the CFPB about the results of its efforts. The settlement, which is subject to court approval, will be filed tomorrow in the U.S. District Court for the Central District of California.