When Pedro Lantigua, a 32-year-old truck driver from Oklahoma City, decided to trade in his vehicle last summer, he walked into his local dealership and drove off with a brand-new Chevrolet Silverado. Like millions of Americans, he agreed to a loan arranged by the dealer.
Unlike most buyers, Lantigua actually knows how much he spent on that service, but only because the details came out when he sued the dealer for breach of contract related to his trade-in.
Lantigua agreed to pay $609 a month, meaning that he would own the truck in about six years. But Lantigua said he did not know that his 12.6 percent interest rate included about $1,000 for the dealership, David Stanley Chevrolet, which arranged Lantigua’s loan through Ally Bank, according to Lantigua’s lawyer, Kathi Rawls.
Dealers often arrange loans for car buyers through third-party lenders, providing something of a one-stop shop for about 80 percent of all consumers who need financing.
Dealers can decide how much they want to charge for that service and tack their fee onto the lender’s interest rate.
“Individual consumers usually don’t even know that they’ve been marked up,” said Rosemary Shahan, the president of Consumers for Auto Reliability and Safety, a nonprofit consumer advocacy group.
Dealerships are not required to disclose what percentage of the interest rate goes to them, and consumer advocates and some regulators are concerned that dealers’ ability to decide how much to charge has led to discriminatory lending against minorities. That concern has prompted a number of government investigations into the growing business of auto lending.
At stake are billions of dollars in fees on more than $700 billion in outstanding auto loans. The consumer protection bureau says that it has found tens of millions of dollars in disparities between minority and white car buyers.
The issue of whether those fees violate fair-lending rules has been taken up by the Justice Department.
A senior official, Steven H. Rosenbaum, chief of the housing and civil enforcement section, disclosed during an industry trade forum last week that the department was in the middle of a number of joint investigations with the consumer bureau about auto loans.
The investigations center on whether dealers have violated the Equal Credit Opportunities Act, which prohibits credit discrimination based on minority, religious, or other protected statuses.