Honda agrees to settle US discrimination claims out of court

Honda's US operation agreed to pay $24 million (22 million euros) to those affected by what the US Justice Department and Consumer Financial Protection Bureau had described as broad discrimination against non-white applicants.

The Japanese giant provides financing to car buyers via the American Honda Finance Corporation based in Cailfornia, but individual dealers usually broker the loans for customers on the forecourts, as is typical for most major carmakers in the US. These dealers were at liberty to negotiate higher rates with the buyers, and US authorities argued that they did so more frequently when dealing with black, Hispanic, Asian and Pacific Islander customers.

The claim detailed that the average African-American borrower had paid over $250 more during the loan term, while for Hispanics it was over $200 and for Asians over $150. Thousands of car buyers were said to have been affected by the practice. The US government alleged that minority borrowers were charged higher interest rates "because of their race or national origin and not because of the borrowers' creditworthiness or other objective criteria related to borrower risk."

Permitted premiums to be capped in futue

As well as the direct compensation package for those affected, Honda agreed to set aside a $1 million fund paying for a consumer financial education program for minorities.

Crucially, Honda also promised to cap the premium its dealers could demand in future to between 1 and 1.25 percentage points, depending on the length of the loan. The Justice Department was particularly complimentary of this measure in what it described as a groundbreaking legal settlement.

"We believe that Honda's new compensation system balances fair compensation for dealers and fair lending for consumers," said Vanita Gupta, head of the Justice Department's civil rights division. "We hope that Honda's leadership will spur the rest of the industry to constrain dealer mark-up."

'There's going to be discrimination'

Ira Rheingold, executive director of the National Association of Consumer Advocates based in Washington, said such discriminatory practices were rampant industry-wide.

"As long as a car dealer arranges financing, and there's no control over what the car dealer can charge, there's going to be abuse and there's going to be discrimination, because they're going to look you over and say, 'I can get away with charging you more,'" Rheingold said.

Honda said in a statement that it "strongly opposes any form of discrimination, and we expect our dealers to uphold this principle, as well."

ss/msh (AFP, AP)