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U.S. Consumer bureau warns auto lenders on discriminatory rates

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By Reuters
Friday, March 22, 2013, 12:01 a.m.

U.S. Consumer bureau warns auto lenders on discriminatory rates

U.S. regulators warned auto lenders on Thursday that they might be on the hook for breaking the law if they engage in a common industry practice that consumer advocates say results in higher interest rates for minority borrowers. The Consumer Financial Protection Bureau issued a notice advising lenders on how to comply with fair lending rules, a warning that could be a precursor to enforcement action against those found to discriminate against certain borrowers.

People who want to buy cars often obtain loans through auto dealers rather than directly from a bank. Those dealers may work with banks, credit unions and other financial institutions in a process known as “indirect auto lending.” Banks tell car dealers what interest rate borrowers should pay, but dealers often boost, or “mark up,” the rate they actually charge consumers and then split the extra revenue with the bank. Research shows that dealers often attach higher markups to loans made to African-American and Hispanic borrowers, the consumer bureau said on Thursday.

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