Tuesday, April 2, 2013

Feds to take on 'discriminatory' car loans

By Kraut white tree, today registered users
The consumer financial protection Bureau said lenders on Thursday car, that she would be responsible for "unlawful, discriminatory prices" by car dealers, the minority customers millions of dollars a year in higher interest costs.

"Consumers should not have to pay more for a car loan simply on the basis of their race", said the Director of the Agency, Richard Cordray, in a statement.

Here's how it works: a potential car buyer financed the vehicle from the dealer. The dealer sells the loan what is known as an indirect auto lender, which can be a Bank, Credit Union or finance company.

Before the dealer finance sets the price of the loan, he contacted the lender to see what interest rate she'll accept. The problem is that some lenders allow to increase the dealer at this rate and to keep some or all of this extra profit. This is called the "dealer markup", and the customer is never told.

"It is to know no way above, if the loan or is how strong and marked," said Chris Kukla, senior Vice President at the Center for responsible lending. "The recent actions have shown that borrowers were more likely to pay a premium for a color. "And if they did, she more than similarly situated white borrowers paid."

The NAACP is pleased that the Consumer Agency to deal with the problem is.

"Those who have the least, lose most of these nefarious practices, lose," said Dedrick Asante Mohammeds, senior director of the NAACP's economic programs.

The National Automobile Dealers Association and the National Association of minority automobile dealers said it is strongly against any form of discrimination, but they pointed out that a change in the way traders are compensated can drive the cost of credit.

"The dealer-assisted financing model (indirect auto loan) immensely successful in improving access to both reducing the cost of credit for millions of Americans was." Consumers overwhelmingly choose optional dealer-assisted financing, because it is more convenient and competitive, "she said in a statement.

Consumer advocates call a "widespread practice", which they have tried to stop since the mid-1990s this disparity of markup. The National Consumer Law Center (NCLC) sued various lenders to this practice.

"We showed in our processes, that the loans for African-Americans and Hispanics were more frequently referred to as the white and the premiums were higher than for white, even though they had equal to credit scores," said Attorney John Van Alyst NCLC.

For example, the NCLC was that an average dealer markup of $451 paid black car buyers in the Northeast, financed through a dealer with one of the big car company sponsor. That compared with only $183 for white customers with similar credit histories. (Read the entire report: racial differences in car loan)

The CFPB told indirect auto lenders to ensure that laws fair lending by paying a flat fee per transaction dealer markup prices are not at its discretion more respected.

Consumer groups agree that it time for the current system, hidden fees are set randomly disappear.

"Buying a car already is one of the most difficult and complicated buying decisions consumers make worse the purchase of discriminatory loan practices is reprehensible,", said Jack Gillis, Director of public affairs with the Consumer Federation of America and author of "The Car Book." "The tragedy is that many buyers probably do not know that they are being discriminated against."

The best defense is, shop around for financing outside of the dealer, so you know what is just in their finance offices, Gillis advised.

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