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Car Dealers Charge Exorbitant Interest Rates

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Charlene Crowell

By Charlene Crowell
NNPA Columnist

 

Car lending is on the rise, and rising with it is a hidden, unfair, abusive and discriminatory practice: car dealer interest rate markups. Surveys show that at least two-thirds of Americans have no idea it happens.

A decade ago, the largest auto finance companies settled landmark cases alleging discrimination in auto lending. Recent enforcement actions suggest that discrimination and unfairness still exist in the auto lending market.

Since 80 percent of the cars financed in the U.S. are financed through the dealer, this hidden practice is a huge threat to consumers.

Just this week, Honda Finance Corporation (HFC) agreed to pay $24 million in restitution to borrowers of color as a part of a settlement with the Consumer Financial Protection Bureau (CFPB) and Department of Justice (DOJ), after investigators discovered HFC’s policy to allow dealers to mark up the interest rate resulted in borrowers of color paying more in interest than White borrowers.

Unfortunately, Honda’s discriminatory auto practices are not an isolated incident.

An earlier settlement that CFPB and DOJ’ reached with Ally Bank, in which Ally agreed to pay $98 million in civil penalties and restitution, to settle claims of discrimination. Black, Latino and Asian American car buyers who financed with Ally paid more in interest on their loans than similarly situated White borrowers because of car dealer interest rate markups.

In September, CFPB revealed that several lenders agreed to pay more than $50 million in fines and restitution because supervisory examinations revealed issues of discrimination. And, a recent settlement between the DOJ and Evergreen Bank found similar disparities in Evergreen’s motorcycle lending portfolio, also attributable to dealer interest rate markups.

Consumer advocates welcomed the enforcement actions but cautioned that more work still needs to be done.

“We continue to believe that the only effective way to completely eliminate the discriminatory impact and the unfairness of hidden dealer interest rate markups is to end the practice altogether,” said Chris Kukla, CRL Senior Vice President. “This is a step in the right direction and we urge the CFPB and DOJ to continue pursuing the remaining cases.”

Kukla continued, “However dealer interest rate markups remain an unfair and hidden practice with continued potential for discrimination. CFPB and DOJ must vigilantly monitor the data for discriminatory or unfair impact and act swiftly if and when that impact occurs.”

For the moment, however, Richard Cordray, CFPB’s director will mark the progress made as the journey towards fair lending continues.

“Honda’s proactive decision to move to a new pricing and compensation system demonstrates industry leadership and represents a significant step towards protecting consumers from discrimination,” observed Cordray.

Dealer interest rate mark-up is the practice of adding extra interest to a consumer’s loan–dealers pocket this difference as compensation.

How does it work in practice?

A borrower qualifies for a loan at 5 percent, but the dealer raises it by as much as 2.5 percent more. The dealer tells the consumer, “Great news! We got you a great rate of 7.5 percent!”  The dealer then collects a large bonus payment, up to a thousand dollars or more, when it sells the loan to a lender. The borrower gets stuck with higher car payments for the life of the loan.
Research, court cases and enforcement actions have shown that consumers of color have their loans marked-up more often, and by a greater amount, than White borrowers with similar credit profiles. Data from a series of court cases settled a decade ago found that African American and Latino borrowers were twice as likely to be hit with a dealer interest rate markup, and that markup was on average twice as large as for a similarly-situated white borrower.  Those lenders agreed to cap the amount of markup dealers could add to the interest rate for 10 years, and those agreements have all expired.

Additional CRL research showed that for borrowers of color, following the auto dealers’ own advice on avoiding paying too much in markup does work. Car dealers insist that the interest rate is also negotiable, and that if consumers negotiate the rate like they do the price of the car the threat of overcharge disappears.

CRL data refutes that. According to a CRL-sponsored survey, borrowers of color reported attempting to negotiate the interest rate as much, if not more often, than white borrowers, and yet paid higher interest rates than similarly situated white borrowers. In fact, borrowers of color who negotiated the interest rate paid more than White borrower who did not negotiate.

Media accounts suggest that the CFPB and DOJ are working on several more cases alleging discrimination, and other bank regulators are also referring cases to the DOJ. A host of other enforcement agencies have also launched investigations into auto lending, including whether dealer markups have a discriminatory impact. A similar practice was banned in the mortgage market; it is long past time to end the same practice in the auto lending market.

Even though every forward stride deserves its own acknowledgement, the car lending market still lacks transparency and fairness for many consumers. Dealer interest rate markups are unfair and discriminatory, and we should not tolerate hidden fees that result in unfairness and discrimination in any financial marketplace.

Here’s hoping that car sales will soon be more broadly and fairly transacted for everyone.

 

Charlene Crowell is a communications manager with the Center for Responsible Lending. She can be reached at Charlene.crowell@responsiblelending.org.

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Activism

OPINION: Your Voice and Vote Impact the Quality of Your Health Care

One of the most dangerous developments we’re seeing now? Deep federal cuts are being proposed to Medicaid, the life-saving health insurance program that covers nearly 80 million lower-income individuals nationwide. That is approximately 15 million Californians and about 1 million of the state’s nearly 3 million Black Californians who are at risk of losing their healthcare. 

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Rhonda M. Smith.
Rhonda M. Smith.

By Rhonda M. Smith, Special to California Black Media Partners

Shortly after last year’s election, I hopped into a Lyft and struck up a conversation with the driver. As we talked, the topic inevitably turned to politics. He confidently told me that he didn’t vote — not because he supported Donald Trump, but because he didn’t like Kamala Harris’ résumé. When I asked what exactly he didn’t like, he couldn’t specifically articulate his dislike or point to anything specific. In his words, he “just didn’t like her résumé.”

That moment really hit hard for me. As a Black woman, I’ve lived through enough election cycles to recognize how often uncertainty, misinformation, or political apathy keep people from voting, especially Black voters whose voices are historically left out of the conversation and whose health, economic security, and opportunities are directly impacted by the individual elected to office, and the legislative branches and political parties that push forth their agenda.

That conversation with the Lyft driver reflects a troubling surge in fear-driven politics across our country. We’ve seen White House executive orders gut federal programs meant to help our most vulnerable populations and policies that systematically exclude or harm Black and underserved communities.

One of the most dangerous developments we’re seeing now? Deep federal cuts are being proposed to Medicaid, the life-saving health insurance program that covers nearly 80 million lower-income individuals nationwide. That is approximately 15 million Californians and about 1 million of the state’s nearly 3 million Black Californians who are at risk of losing their healthcare.

Medicaid, called Medi-Cal in California, doesn’t just cover care. It protects individuals and families from medical debt, keeps rural hospitals open, creates jobs, and helps our communities thrive. Simply put; Medicaid is a lifeline for 1 in 5 Black Americans. For many, it’s the only thing standing between them and a medical emergency they can’t afford, especially with the skyrocketing costs of health care. The proposed cuts mean up to 7.2 million Black Americans could lose their healthcare coverage, making it harder for them to receive timely, life-saving care. Cuts to Medicaid would also result in fewer prenatal visits, delayed cancer screenings, unfilled prescriptions, and closures of community clinics. When healthcare is inaccessible or unaffordable, it doesn’t just harm individuals, it weakens entire communities and widens inequities.

The reality is Black Americans already face disproportionately higher rates of poorer health outcomes. Our life expectancy is nearly five years shorter in comparison to White Americans. Black pregnant people are 3.6 times more likely to die during pregnancy or postpartum than their white counterparts.

These policies don’t happen in a vacuum. They are determined by who holds power and who shows up to vote. Showing up amplifies our voices. Taking action and exercising our right to vote is how we express our power.

I urge you to start today. Call your representatives, on both sides of the aisle, and demand they protect Medicaid (Medi-Cal), the Affordable Care Act (Covered CA), and access to food assistance programs, maternal health resources, mental health services, and protect our basic freedoms and human rights. Stay informed, talk to your neighbors and register to vote.

About the Author

Rhonda M. Smith is the Executive Director of the California Black Health Network, a statewide nonprofit dedicated to advancing health equity for all Black Californians.

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Activism

OPINION: Supreme Court Case Highlights Clash Between Parental Rights and Progressive Indoctrination

At the center of this controversy are some parents from Montgomery County in Maryland, who assert a fundamental principle: the right to shield their children from exposure to sexual content that is inappropriate for their age, while also steering their moral and ethical upbringing in alignment with their faith. The local school board decided to introduce a curriculum that includes LGBTQ+ themes — often embracing controversial discussions of human sexuality and gender identity.

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Craig J. DeLuz. Courtesy of Craig J. DeLuz.
Craig J. DeLuz. Courtesy of Craig J. DeLuz.

By Craig J. DeLuz, Special to California Black Media Partners

In America’s schools, the tension between parental rights and learning curricula has created a contentious battlefield.

In this debate, it is essential to recognize that parents are, first and foremost, their children’s primary educators. When they send their children to school — public or private — they do not surrender their rights or responsibilities. Yet, the education establishment has been increasingly encroaching on this vital paradigm.

A case recently argued before the Supreme Court regarding Maryland parents’ rights to opt out of lessons that infringe upon their religious beliefs epitomizes this growing conflict. This case, Mahmoud v. Taylor, is not simply about retreating from progressive educational mandates. It is fundamentally a defense of First Amendment rights, a defense of parents’ rights to be parents.

At the center of this controversy are some parents from Montgomery County in Maryland, who assert a fundamental principle: the right to shield their children from exposure to sexual content that is inappropriate for their age, while also steering their moral and ethical upbringing in alignment with their faith. The local school board decided to introduce a curriculum that includes LGBTQ+ themes, often embracing controversial discussions of human sexuality and gender identity. The parents argue that the subject matter is age-inappropriate, and the school board does not give parents the option to withdraw their children when those lessons are taught.

This case raises profound questions about the role of public education in a democratic society. In their fervent quest for inclusivity, some educators seem to have overlooked an essential truth: that the promotion of inclusivity should never infringe upon parental rights and the deeply held convictions that guide families of different faith backgrounds.

This matter goes well beyond mere exposure. It veers into indoctrination when children are repeatedly confronted with concepts that clash with their family values. 

“I don’t think anybody can read that and say: well, this is just telling children that there are occasions when men marry other men,” noted Justice Samuel Alito. “It has a clear moral message, and it may be a good message. It’s just a message that a lot of religious people disagree with.”

Justice Amy Coney Barrett raised a crucial point, noting that it is one thing to merely expose students to diverse ideas; it is quite another to present certain viewpoints as indisputable truths. By framing an ideology with the certainty of “this is the right view of the world,” educators risk indoctrination rather than enlightenment. This distinction is not merely academic; it speaks to the very essence of cultivating a truly informed citizenry.

Even Justice Elena Kagan expressed concern regarding the exposure of young children to certain materials in Montgomery County.

“I, too, was struck by these young kids’ picture books and, on matters concerning sexuality, I suspect there are a lot of non-religious parents who weren’t all that thrilled about this,” she said.

Justice John Roberts aptly questioned the practicality of expecting young children to compartmentalize their beliefs in the classroom.

“It is unreasonable to expect five-year-olds, still forming their worldviews, to reconcile lessons that conflict fundamentally with the teachings they receive at home,” he said.

As was noted in my previous commentary, “The Hidden Truth In The Battle Over Books In American Schools”, what lies at the heart of these debates is a moral disconnect between the values held by the majority of Americans and those promoted by the educational establishment. While the majority rightly argue that material containing controversial content of a sexual nature should have no place in our children’s classrooms, the education establishment continues to tout the necessity of exposing children to such content under the guise of inclusivity. This disregards the legitimate values held by the wider community.

Highlighted in this case that is before the Supreme Court is a crucial truth: parents must resolutely maintain their right to direct their children’s education, according to their values. This struggle is not simply a skirmish; it reflects a broader movement aimed at reshaping education by privileging a state-sanctioned narrative while marginalizing dissenting voices.

It is imperative that we assert, without hesitation, that parents are — and must remain — the primary educators of their children.

When parents enroll a child in a school, it should in no way be interpreted as a relinquishment of parental authority or the moral guidance essential to their upbringing. We must stand firm in defending parental rights against the encroaching ideologies of the education establishment.

About the Author

Craig J. DeLuz has almost 30 years of experience in public policy and advocacy. He has served as a member of The Robla School District Board of Trustees for over 20 years. He also currently hosts a daily news and commentary show called “The RUNDOWN.” You can follow him on X at @CraigDeLuz.

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Activism

Oakland Post Endorses Barbara Lee

Barbara Lee will be able to unify the city around Oakland’s critical budget and financial issues, since she will walk into the mayor’s office with the support of a super majority of seven city council members — enabling her to achieve much-needed consensus on moving Oakland into a successful future.

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Congresswoman Barbara Lee. Courtesy photo, Office of Rep. Barbara Lee.
Former Congresswoman Barbara Lee. Courtesy photo.

As we end the celebration of Women’s History Month in Oakland, we endorse Barbara Lee, a woman of demonstrated historical significance. In our opinion, she has the best chance of uniting the city and achieving our needs for affordable housing, public safety, and fiscal accountability.

As a former small business owner, Barbara Lee understands how to apply tools needed to revitalize Oakland’s downtown, uptown, and neighborhood businesses.

Barbara Lee will be able to unify the city around Oakland’s critical budget and financial issues, since she will walk into the mayor’s office with the support of a super majority of seven city council members — enabling her to achieve much-needed consensus on moving Oakland into a successful future.

It is notable that many of those who fought politically on both sides of the recent recall election battles have now laid down their weapons and become brothers and sisters in support of Barbara Lee. The Oakland Post is pleased to join them.

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