Honda Settles Bias Suit Over Lending Practices

Honda Motor Co.’s U.S. finance arm and three major U.S. banks have agreed to settle class-action lawsuits filed by black customers who accused them of racial bias in automobile lending practices.

The suits alleged that the companies’ policies allowed car dealers to charge thousands of black customers more interest on auto loans than was charged to whites with similar financial histories. The interest was in the form of a dealer-added “markup” to the basic interest rate. Most states allow such markups for loans originated by a dealership, as long as they’re applied evenly.

A spokesman for Torrance-based American Honda Motor Co. said the company “disagrees with the allegations” in the suit but would not comment further.

American Honda Finance Co. was originally sued in Alameda Superior Court in Northern California in 2003. That lawsuit was later consolidated into a federal class action being heard in U.S. District Court in Nashville.

The lawsuit against Honda claims that black buyers paid on average an extra $1,000 in interest markups while white customers with similar financial histories paid less than $500 extra.

The proposed settlements by American Honda Finance, Bank One, Bank of America Corp. and U.S. Bancorp are scheduled to be finalized Feb. 22.

The settlements call for the lenders to set tighter caps on how much car dealers can increase interest charges on car loans and to collectively offer loans without any markups to 2.4 million minority borrowers.

Under the settlement, American Honda Finance tentatively agreed to offer markup-free loans to 625,000 minority customers. The lending firm, which had allowed Honda dealers to add markups as high as 3.5% of the loan value, also agreed to impose a 2.25% markup cap on loans of up to 60 months and a 2% cap on loans of more than 60 months.

“We are pleased we reached the agreement, and we think the settlement will contribute to more consistent practices in the industry,” said Bank of America spokeswoman Shirley Norton in San Francisco.

Nissan Motor Acceptance Corp., the Torrance-based lending arm for Nissan Motor Co., settled a similar suit 2003, as did General Motors Acceptance Corp. A similar suit against Torrance-based Toyota Motor Credit Corp., lending arm for Toyota Motor Corp., is still pending.

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Times wire services were used in compiling this report.