How do you determine what finance rates your customers pay when they finance their vehicle purchase through your dealership? Many dealers permit their F&I staff to “mark up” whichever rate the finance company offers as its “buy rate”. In many cases, the F&I person has authority to choose any mark up they desire – some customers may only pay one percentage point higher, while others will pay two points and so on. It is this type of discretion that may cause trouble for your 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.

To support their case, the government conducted an independent analysis of deal files. The analysis made two damaging conclusions: 1) that non-Asian borrowers were charged an average of 50 to 155 basis points more than Asian borrowers, and 2) the difference in 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 rates, you need to 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. No one enjoys a visit from the feds.



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