Department of Justice Settles Its First Discrimination Case against a “Buy Here, Pay Here” Used Car Dealership

By: Melanie Brody, Anjali Garg

On February 10, 2015, the Department of Justice (DOJ) and the North Carolina Attorney General announced a settlement against two “buy here, pay here” used car dealerships and the companies’ presidents. The settlement resolves allegations under the Equal Credit Opportunity Act, its implementing regulation (Regulation B), the North Carolina Unfair and Deceptive Trade Practices Act, and the North Carolina Uniform Commercial Code, that the companies engaged in “reverse redlining” by allegedly targeting African American borrowers for used car loans using unfair and predatory terms.

The complaint alleges that the defendants targeted African American borrowers in the Charlotte area by placing the dealerships in majority African American neighborhoods. In addition, the complaint alleges that the defendants did not assess customers’ credit history or ability to repay before entering into installment sales contracts with disproportionately high sales prices, down payments, and annual percentage rates (APRs) as compared to other subprime used car dealers. The complaint also alleges that the defendants repossessed customers’ cars even if they were not in default on the contracts at the time. In addition, the complaint alleges that defendants periodically placed GPS devices on the cars without informing the customers in order to locate and repossess the cars. The defendants deny the allegations and any violations of law.

The consent decree requires the defendants to establish a $225,000 settlement fund for allegedly affected borrowers. The consent decree also requires the defendants to establish certain written policies and procedures regarding collecting customer financial information, account maintenance, and data retention; improve disclosures; limit monthly payments to no more than 25% of a borrower’s total documented monthly net income; limit APRs to 5% below North Carolina’s allowable limit and reduce that rate by at least 3% for certain credit-worthy applicants; ensure sales prices are “competitive,” as defined in the settlement, with other local dealers; follow state and federal law regarding servicing, repossessions, and account closures; post and provide non-discrimination notices; and provide annual training to relevant employees.

This is DOJ’s first settlement against a “buy here, pay here” used auto dealer. Acting Assistant Attorney General Vanita Gupta of the DOJ Civil Rights Division noted that “Combating discrimination in all segments of the auto lending market is, and will remain, a top priority for the Civil Rights Division … I hope that other buy here, pay here dealerships will evaluate their practices in light of this settlement.”

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