The Department of Justice and the Consumer Financial Protection Bureau today announced a historic $24 million settlement to resolve claims that Honda Finance Corporation (Honda) discriminated against thousands of African-American, Hispanic and Asian and Pacific Islander borrowers by subjecting them to higher interest rates on auto loans. The settlement requires Honda to significantly limit the discretion car dealers have to mark up consumers’ interest rates, and to establish a fund to compensate victims of the company’s past misconduct.

As an indirect auto lender, Honda sets a risk-based interest rate that it conveys to car dealers. Then, at the time of loan closing, car dealers can vary the final interest rate that a consumer pays by adding an amount to the dealer’s “buy rate.” This is known as dealer markup, and it can generate significant compensation for dealers. The complaint alleges that, on average, African-American and Hispanic borrowers were obligated to pay over $250 more over the term of their auto loans because of Honda’s discriminatory pricing and dealer markup practices.

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