Many dealerships permit their Finance staff to “mark up” whichever APR finance rate the lending company offers as its “buy rate”. In many cases, the Finance person has authority to choose any mark up they desire – some customers may only pay one percentage point markup, while others will pay two points and so on. It is just this type of discretion that can cause trouble for the dealership.
The trouble arises when this sort of discretion causes a “Protected Class” under the Equal Credit Opportunity Act to pay higher finance charges than non-protected classes. In United States of America v. Union Auto Sales, Inc., the federal government alleged that Union Auto violated the Equal Credit Opportunity Act by allowing their F&I personnel to add discretionary “overages” to financing contracts that resulted in a pattern of discrimination against non-Asian customers. More specifically, it was alleged that Asian borrowers were ultimately able to obtain a lower car finance APR than non-Asian borrowers with similar credit scores.
To support their case, the government conducted an independent analysis of the dealerships finance deal files. The analysis made two damaging conclusions: 1) non-Asian borrowers were charged an average of 50 to 155 basis points more than Asian borrowers, and 2) the difference in APR finance charges assessed to Asians and non-Asian borrowers did not result from mere differences in creditworthiness.
As a result of these conclusions, the court refused Union Auto’s request to dismiss the case. They noted intent is irrelevant when making a claim for “disparate impact” and the U.S. need only show that Union Auto “simply treats some people less favorably than others because of their race, color, religion, sex, or national origin.”
In summation, if your staff has the authority to set finance or APR rates on car dealers, you must make certain they are not using their authority in such a way that treats some people more favorably than others because of their race, color, religion, or national origin.