Legal Blog

Auto Dealers Face Rise in Fair Lending Claims

We are likely to see a rise in fair lending claims in the coming months, and car dealerships may be a new focus. A Maryland used car dealership settled fair lending charges with the Department of Justice after it was accused of discriminating against African American used car buyers by offering them less favorable terms than Caucasian consumers and violating the Equal Credit Opportunity Act (ECOA). In 2019, the DOJ brought this lawsuit after using individuals to pose as prospective car buyers and obtain information about terms they were offered. The DOJ accused the dealership of offering more favorable financing terms to Caucasian prospective buyers than to African American buyers on the same vehicles. These terms included allowing Caucasian buyers multi-installment down payments, quoting higher biweekly payments to African American buyers and generally discouraging African American buyers.

The settlement requires the dealership to implement required practices to ensure that loan terms are offered to customers on a nondiscriminatory basis. Specifically, the car dealership will develop written policies to govern financing decisions, including how down payment amounts are calculated and whether the down payments may be made in more than one installment; post and distribute nondiscrimination notices to potential purchasers; attend training on the requirements of the Equal Opportunity Act; and engage in ongoing record keeping and reporting to the DOJ.

The Equal Credit Opportunity Act prohibits lending discrimination based on race, color, religion, national origin, sex, marital status, age, because an applicant receives income from a public assistance program, or because an applicant has in good faith exercised any right under the Consumer Credit Protection Act. This case shows that car dealerships should not only be aware of these claims but should be ready for a situation like this where the DOJ used individuals guised as potential customers to gather information, upon which the claims were based. The takeaway is that car dealerships should not only be creating policies and training management and sales consultants on equal treatment among employees and subordinates, but also on treatment of customers. Dealerships should consider not only basic anti-discrimination practices, but also education on implicit bias. Taking a proactive position on these types of claims will help protect dealerships and reduce exposure.





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