In Inconvenient Truth about Race and Auto Lending

June 24, 2018

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Last month President Trump signed into law a joint congressional resolution to overhaul a rule issued by the Obama era Consumer Financial Protection Bureau (CFPB), which was aimed to prevent the alleged discrimination by auto dealers charging minorities higher interest rates than whites with similar credit scores. On May 8, the House voted 234-175 to overturn the bureau’s 2013 auto lending bulletin. The Senate had voted on April 18, 51-47 to repeal it as well. 


As a conservative writer who has also been in the car business for about 20yrs, I have been bombarded with questions and angry sentiments on why ‘ the evil Republicans and President would want to remove protections of minorities from discrimination’? These reactions have been reinforced by many press reports with headlines that implied that this was the case and which has served as confirmation bias that the GOP does not care about discrimination of minorities. Very few of these reports have outlined the valid basis why this supposedly protection rule was not only an overreach but also baseless in function. From my experience I will also add a perspective and inconvenient facts that does not fit the regular narrative on race but should. Also, how it relates to a way many minorities really are discriminated in auto lending.


As these pages have outlined, the CFPB was expressly prohibited by Dodd-Frank from regulating auto dealers. Former CFPB chief Richard Cordray proceeded to use the back door of auto-financing to regulate dealers and was fixated to prove the theory that minorities pay higher interest rates that whites on vehicle loans at dealers. However, because dealers are barred from law from collecting data on race, Mr. Cordray used statistical models to guess or assume the race of borrowers based on their last name and addresses to determine “disparate impact” on minorities. So a person whose last name was Jackson was likely assumed to be black or an O’brien was likely assumed to be white. 


To illustrate how this basis for such a powerful and punitive rule could be flawed, if you as reader where to innocently assume my race based on my name, you probably would get it wrong as most do who haven’t met me. As a black Jamaican immigrant I often hear from people who meet me for the first time, “You don’t look like a Karl Miller”. No offence taken as most people instinctively assume what someone else looks like based on their name or by having a conversation on the phone. However, when a bureau uses this as a baseless pretext as the CFPB did to coerce settlements from auto dealers and banks, it signifies how big government especially from an unaccountable bureau can inflict severe damage without addressing a problem while seeming politically virtuous. Ally Bank of Detroit was coerced into paying $80 million in damages and $18 million in penalties without being accused of a specific act of discrimination.


All of this avoids key points why minorities very frequently do get taken advantage of and are gouged into high auto lending rates even with good credit, which I have witnessed too many times. The unlikely source very often when this happens is that the salesperson or finance person is actually of the same race or background as the customer. 


Since I work in in suburb close to NYC area we do get a lot of racially and ethnically diverse customers who cross-shop or have a vehicle they would like to trade out of.  Almost weekly I have a customer who is also a minority with good credit tell me that when they shopped at another dealer, the person there told them their credit was not as good as it really is and was about to charge them a much higher rate. Some that I have sold qualified for and got 0% APR but were told elsewhere that because of their credit the rate would be 19% APR or higher. Unfortunately some people I meet who are trying to trade in their cars made deals at a previous dealer at these exorbitant rates even though they should have qualified for much lower rate. More so, they now realize that their trade-in does not have the equity they thought because most of their monthly payment was going towards the high interest and they also financed overpriced after-sale products. The common reaction to this disappointment, “ I thought he was taking care of me because he was one of us”, or in the case of many Latino customers “ I felt comfortable with him because he spoke Spanish”, even though the customer often speaks fluent English. 


While profiling is normally often seen in a malicious context, in many cases people are drawn to interact with others because they innocently profile and assume that certain persons will cater to their interests because they share a common trait or ethnicity. The inconvenient truth in a car dealer is that minority customers also often profile which dealer they visit or approach who they think will ‘take are’ of them based on those shared traits, and then get screwed financially. This is not to say that people should avoid doing business with a person of shared ethnicity, but it is a valuable lesson for the conversation on race not only in car buying process but generally. Many times minorities make the mistake politically that a politician will help them because of shared ethnicity and then that politician take advantage of that loyalty or take it for granted. These are reminders that the conversation on race should focus more on every race not just whites judging others on the context of their character and not ethnicity.


I often hear of these horror stories because I am also profiled by other minorities frequently and approached because of my mixed ethnic background. Sometimes, because they assume I am an ethnicity that I am not such as being Latino. Either way, my name confuses them too.





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