According to a Wall Street Journal report this week, the Justice Department is investigating numerous big banks over minorities paying higher interest rates for auto loans. The practice, known as “redlining,” or charging people different interest rates based on race, is not only immoral, it is illegal.
Auto loans are an $800 billion industry. Most auto loans that end up in the hands of big banks start at the dealership. Dealerships make more money by selling the higher interest loans to banks, and banks make more money from the customer by charging more interest. The dealerships may be the ones setting up the lending, but the banks also benefit from the discrimination, so the law expects banks to use reasonable measures to make sure the dealers sending them loans are not discriminating.
Consider the following modest example. A person borrowing $15,000 to buy a car at 6% for 5 years will pay $290/month. If someone with the same credit and income but a different race is charged 9% interest for 5 years, it will be $311/month. That $21/month extra comes out to $1,260 more paid for the same car by the person of color with the higher interest rate. You can imagine how much more someone has to pay when they are charged 10%, 15% or even 18% interest on a car.
Redlining was a major problem for years in the housing market, preventing minorities from home ownership, and now data is showing it is a problem with car loans. The only thing that dealers and banks are supposed to look at when loaning you money is your credit and your income. Unfortunately, the Justice Department is finding that banks and dealerships are also taking race into account because groups of people with the same income and credit are being charged different interest rates depending on their race.
The Equal Credit Opportunity Act (ECOA) makes this practice illegal and provides people with the right to sue when they have been the victim of discrimination when borrowing money. If race was the reason someone is charged a higher interest rate, they can recover damages and attorney’s fees from the bank. To be an ECOA violation, you have to prove either the company intentionally discriminated against you or, even if they didn’t intend to discriminate that their system works out to discriminate against minorities regularly. In 2013, Ally Financial paid $98 million to resolve claims that the loans it was accepting were discriminatory even though they themselves were not intending to discriminate.
The consumer protection lawyers at Jinks, Crow & Dickson take seriously the rights of all people to be treated equally and fairly. We regularly investigate and pursue claims based on fraudulent and wrongful conduct of banks who take advantage of people’s trust in them by discriminating against them or charging them excessive fees. If you feel like you’ve been intentionally discriminated against or if you feel like there is a system in place that is making it more expensive for you to borrow money based on race, look into it further and call an experienced attorney to see if there is a potential case. You’ll not only be helping yourself save money, you’ll be making the world a better place by putting an end to such a terrible practice.