Loan Discrimination At The Auto Dealership : Current Cases , Strategies and The Case For Intervention

Imagine walking into an auto dealership with the intention of purchasing a new car. After walking the showroom floor and test-driving a mid-sized sedan, you tell the salesperson that you’d like to purchase the car but, in order to do so, you will need financing. The salesperson hands you some papers to fill out which request the routine personal and financial questions, such as your income and current debt. The form includes a provision which authorizes the dealership to retrieve your credit report. The salesperson then asks you to wait while she obtains approval for the interest rate on the loan for the car you are about to purchase. When she returns, she informs you that for a $15,000 loan, to be paid over 5 years, the interest rate is 8 percent. She assures you that it’s “the best she can do.” You agree and leave the dealership with a brand-new car. Now imagine a second customer walks into the showroom. The second customer wants to buy the same car and borrow the same amount of money, payable over 5 years. The second customer’s credit score is the same as the first customer’s score. This time, however, the salesperson informs the customer that his interest rate is 12 percent. Why is the interest rate for the second customer so much higher than the first, given that their credit scores were identical? One explanation relates to a fact left out of this hypothetical; the first customer was white and the second was black.