Articles Posted in banks

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.

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