Buying a car is expensive, but the government wants to make sure that you are not paying more than the next guy just because the dealer has that discretion, The Washington Post> reported yesterday. As a result, Ally Financial, one of the nation's largest auto lenders, handed the government $98 million in December to settle allegations that it allowed dealers to charge minorities more for car loans. Dealers have since rallied around new industry recommendations to end discriminatory pricing, but the government is not backing down on its investigations. Dealers have the discretion to mark up the interest rate on car loans they arrange through lenders. A 2011 study by the Center for Responsible Lending found that the average dealer mark-up on a car loan was about 2.5 percentage points, or $714 in additional interest payments on an average 60-month loan. Researchers at the National Automobile Dealers Association contend that the rate is closer to 1 percentage point for new cars and 0.7 for used vehicles. Advocacy groups have long warned of disparities in the number of black and Latino borrowers hit with higher interest rates, and have questioned whether mark-ups breed fair-lending violations.
