July 8, 2020 | Posted by Kimberly Boatwright, CRCM, CAMS
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Another auto dealership is in hot water with authorities for Fair Lending violations. In the second case of “buy here, pay here” auto dealership getting in trouble this summer, a Maryland used car dealership settled Fair Lending charges with the Department of Justice after it was accused of offering African American used car buyers less favorable terms than white used car buyers and violating the Equal Credit Opportunity Act (ECOA).

The Justice Department filed its suit in September 2019 after an investigation where testers from the Fair Housing Testing Program, which includes fair lending enforcement, had individuals pose as prospective car buyers. Sending in African American and white testers to look at the same car, the DoJ said customers received very different treatment.

African American testers:

  • Needed to make larger down payments than white testers asking about the same car ($2,000 vs $1,500).
  • Were required to put down one single large down payment while white testers were allowed to spread it over two payments within 14 or 30 days—even though in the scenarios tested the African American borrowers had more money to put down.
  • Told their monthly payment would be $150 vs $125 for white testers for the same car.

One African American tester was told he’d have to purchase a $1,700 warranty to be able to take out a loan through the indirect auto finance company the dealership worked with.

As part of the settlement, the dealership has to:

  • Develop written policies to govern financing decisions, including how down payment amounts are calculated and whether the down payments may be made in more than one installment;
  • Post and distribute nondiscrimination notices to potential purchasers;
  • Attend training on the requirements of the Equal Opportunity Act; and
  • Engage in ongoing record keeping and reporting to the United States. 

“The U.S. Department of Justice will not tolerate anyone who discriminates against people because of their race in deciding whether, and under what conditions, to lend them money. Today’s settlement should send a clear message that car dealerships and other lenders must never make credit decisions based on a customer’s race,” said Assistant Attorney General Eric Dreiband for the Civil Rights Division. 

Is Oversight of Auto Dealerships on the Rise?

Fair Lending violations for auto dealerships aren’t limited to Maryland.

Earlier this year an auto dealership in New York and its general manager settled with the Fair Trade Commission (FTC) for $1.5 million for alleged discriminatory lending against African American and Hispanic car buyers. On average, African American consumers were charged about $163 more in interest than similarly situated non-Hispanic white consumers, the complaint said. Hispanic consumers were charged about $211 more in interest. They are accused of violating the FTC Act, the Truth in Lending Act (TILA), and the Equal Credit Opportunity Act (ECOA). 

It was the first-time regulators directly accused an auto dealer of discriminatory lending.

What tipped off government agencies to potential discriminatory lending at these auto dealerships? We don’t know if it was customer complaints, advocacy groups, or something else. But we do know that it was relatively easy for the agencies to build their cases. The New York dealership actively maintained discriminatory policies; the FTC alleges. Meanwhile, the DOJ simply sent in Fair Lending mystery shoppers.

Looking at the requirements of the DOJ settlement, the Maryland dealership had limited, if any, policies for underwriting, leaving it up to staff to make their own decisions without giving them training about EOA and Fair Lending.

“Buy here, pay here” dealerships should take notice. Government agencies certainly are.

For those who are new to paying close attention to Fair Lending compliance or are wondering if the staff is actually listening to training and following Fair Lending policies and procedures, data analysis and Fair Lending analytics are fantastic tools for uncovering Fair Lending violations, giving your company time to address them before the government does.

Also, make sure your staff is trained on Fair Lending. Providing general Fair Lending training to all employees, with a method to track attendance and comprehension, is one of many important elements of a good Fair Lending compliance management program. Download our free Fair Lending Compliance Checklist for an overview of other important elements.

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Kimberly Boatwright, CRCM, CAMS

Kimberly Boatwright, CRCM, CAMS