Car dealers often work with third-party lenders, such as banks or credit unions, to provide financing options to consumers.
Once that "indirect" lender offers the car dealer an interest rate on an auto loan, the dealer is often allowed to mark up that rate to the buyer for additional compensation. Such dealer discretion has resulted in discriminatory lending practices, research shows.
"A loan origination should be as objective as possible, but when you add discretion, you add subjective means that are harder to keep transparent and hold accountable," said Delvin Davis, lead expert on auto lending at the Center for Responsible Lending, a nonprofit research and advocacy group for consumers, which conducted the auto lending research.
Just this year, the National Fair Housing Alliance, a collection of organizations that fight against housing and other types of lending discrimination, launched an investigation into the auto loan industry by sending white and nonwhite "testers" into car dealerships in Virginia.
More than 60 percent of the time, the nonwhite individuals who were more qualified than their white counterparts were given more costly options. As a result, people of color who faced discrimination would pay an average of $2,662 more over the length of the loan.
Advocates have long pushed for the government to step in and address this double standard.
A spokesman for The National Automobile Dealers Association, a trade group, said claims that the removal of this guidance would encourage discrimination were "completely baseless."
"America's franchised auto dealers strongly believe that every customer deserves to be treated fairly, and that there is no room for discrimination of any kind in auto retailing — period," said Jared Allen, senior director of media relations.