It would be nice to believe that auto loans are given out by a system that only looks at your ability to pay and your financial history. And any well-run auto lender will, in fact, care only about your financial history, not your personal background. But a recent federal investigation indicates some borrowers may want to look just as closely as their lender as their lender looks at them.
A Weak Link In The Chain
The loans in question are “indirect” loans, or loans that come from a dealership. In an otherwise unremarkable financial report from J.P. Morgan Chase and Co., they noted that possible “racial disparities” were being investigated by the Department of Justice. This follows from various investigations being conducted by the DOJ and the Consumer Financial Protection Bureau that began in 2013, and warnings from the CFPB that banks who bought loans with evidence of racial discrimination would be exposed to legal liability.
Needless to say, this has left borrowers a bit leery, even if they’re not necessarily affected by the allegations. And many consumers are worried about taking out a car loan, or re-evaluating their loans and wondering if they were on the receiving end of a discriminatory loan. How do you protect yourself? How do you spot a discriminatory loan? And how do you ensure your lender is behaving appropriately?
Direct And Indirect
First of all, it’s worth noting that J.P. Morgan Chase itself hasn’t been accused of discrimination in their lending; if that were actually the case, we’d be hearing much more about it in the news and the federal government would be taking stricter, and more visible, action. Instead, the company may have unknowingly bought loans that were constructed using discriminatory practices from third parties, namely certain car dealerships the company didn’t discuss.
In other words, J.P. Morgan Chase took the dealership at their word and may wind up paying the price. But it illustrates the best way to avoid discriminatory lending practices; don’t take indirect auto financing. Even in the absence of discrimination, this is an important step; indirect financing can add points to your interest rate and make your car loan more complicated and expensive than it needs to be.
Secondly, listen to friends and family and trust your gut. If a lender engages in discrimination, it’s going to alienate customers, and fortunately, we have the Internet to collect those complaints. Of course, you should take everything you read with a grain of salt or two, but if you see a lender repeatedly accused of discrimination, steer clear. Similarly, if you feel you’re being taken advantage of, or just aren’t comfortable with the lender, don’t do business with them.
Finally, get quotes from as many lenders and sources as you can. This is a good step for anyone, but it’s particularly useful for spotting and avoiding bad deals, regardless of your personal background. By getting a multitude of quotes to compare and contrast, you’ll be able to spot the lenders you most want to work with … and who most want to work with you.