Following the Great Recession, credit dried up, dealing a brutal blow to the auto industry. Lenders tightened up so much that even people boasting fairly good credit scores were offered loans with sky-high interest rates or denied altogether.
Half a dozen years down the road, credit restrictions have loosened dramatically. Unfortunately, according to the New York Times, some lenders may be engaging in the same shady business practices that helped usher in the Great Recession in the first place. Federal investigators have stepped in to analyze the situation and stop illegal activity before it can put a dent in our slowly, steadily growing economy.
In the years leading up to the Great Recession, money was easy to get -- too easy, by all accounts. Subprime lenders, which target people with poor credit scores, were doling out cash as fast as they could get it, often charging substantial fees in the process. Default rates were high, and when the economy collapsed, they soared far, far higher.
Now, something similar is happening, but this time around, the Justice Department's Civil Rights Division believes that lenders may be targeting high-interest loans to minority borrowers.
This wouldn't be the first time that auto lenders have been accused of bias. In December of 2013, Ally agreed to cough up nearly $100 million to settle claims of racially discriminating against borrowers.
The problem in that case -- and in the current investigation -- revolved heavily around what's called the "dealer markup". When a dealer brokers an auto loan on a customer's behalf, the dealer can add to the interest rate. That markup, which is carried out solely at the dealer's discretion, generates funds for the dealer.
In Ally's case, it appeared that its partner dealerships were charging higher markups to customers of color. Rather than go through the costly, time-consuming process of a trial, Ally agreed to settle the case and issue refund checks to borrowers who might've been affected.
For some time, there's been talk about nixing the dealer markup, which would help minimize possibilities for racial bias. However, those proposals been met with firm opposition from the National Automobile Dealers Association. (Then again, NADA seems pretty tone-deaf when it comes to consumer preferences, so take their resistance for what it's worth.)
There are renewed efforts underway to do away with dealer markups, at least in New York. We'll have more details later today.