Honda Enters into $24 Million Consent Order with CFPB over Discriminatory Loan Practices

On July 14th, American Honda Finance Corporation (Honda) and the Consumer Financial Protection Bureau (CFPB) entered into a consent order (the Order).  The CFPB and the Civil Rights Division of the Department of Justice (DOJ) alleged that Honda had violated the Equal Credit Opportunity Act (ECOA) and its implementing legislation by permitting dealers to charge higher interest rates on auto loans on the basis of race and national origin.  

According to the Order, after a joint investigation, the DOJ and the CFPB made found that, during the time period covered, on average, African-American borrowers were issued loans that resulted in an extra $250 in interest payments over the course of the loan compared to loans issued to non-Hispanic whites.   Hispanics paid an extra $200 and Asians and Pacific Islanders paid an extra $150.  This result was the product of Honda’s specific policy and practice.  

The Order gives Honda three options that it can pursue in order to prevent future violations of the ECOA in the future.  Honda will also pay $24 million into an escrow account.  The funds will be used to compensate borrowers for the excessive interest payments they were required to make.

As the CFPB notes on its website:

Today’s action is part of a larger joint effort between the CFPB and DOJ to address discrimination in the indirect auto lending market. In December 2013, the CFPB and DOJ took an action against Ally Financial Inc. and Ally Bank that ordered Ally to pay $80 million in consumer restitution and an $18 million civil penalty.

Hat tip to Michael Gibson of the OKCU School of Law.  Professor Gibson suggests that legal scholarship by Ian Ayres and others laid the foundation for this Order and others like it.