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www.washingtoninformer.com Under the Hood: Car Loans Scrutinized as Discriminatory
By Lindiwe Vilakazi WI Staff Writer
When it comes to cars, whether it is a buyer’s or seller’s market, research shows African Americans often come out cheated in the rinse. 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 allowed to markup that rate to the buyer for additional compensation.
The auto industry, according to a 2013 report continues to bait minority borrowers and offer them the costliest car loans, a development that threatens to exacerbate the economic distress in some Black and Hispanic neighborhoods. The practice, called reverse-redlining, further abuses the most vulnerable Americans through predatory lending.
On loans made through the dealership, the dealer can markup the interest rate above the consumer’s credit worthiness. This interest rate markup, also known as “dealer reserve” or “dealer participation,” is described by dealers as the way they are compensated for time spent putting a financing deal together. However, since consumers usually do not know what they can actually qualify for, the markup is often a hidden cost to the consumer.
The report found that in more than 60 percent of the cases, 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 paid an average of $2,662 more over the length of their loans.
In one instance, Ally Bank, charged more than 235,000 minority borrowers higher interest rates for auto loans between 2011 and 2013. The bank was subsequently ordered to pay $80 million in damages to harmed African American, Latin, and Asian and Pacific Islander borrowers and $18 million in penalties.
Legislation introduced in 2013 was later rescinded under the Trump administration, returning car buyers to either an unleveled playing field or one with hidden and costly pitfalls.
Delvin Davis of the Center for Responsible Lending, a nonprofit research and advocacy group for consumers, conducted the auto lending research. The author of Non-Negotiable: Negotiation Doesn’t Help African Americans and Latinos on Dealer-Financed Car Loans, said Black and Latino purchasers often get hoodwinked into costly additions and overcharged.
“People of color are more likely to have the dealer indicate they are getting the ‘best rate available,’ and be told that add-ons are mandatory purchases. In addition, people of color are more likely to be unaware of dealer interest rate markups,” Davis said. “These three factors are also associated with higher delinquency rates, and therefore a greater chance of losing the car through repossession.”
Like the old adage of an educated consumer being the best customers, Davis advises Black and Latino consumers to use their banks or credit unions to obtain preapproved auto loans before visiting a car showroom. He also suggests avoiding unnecessary “add-ons” including extended warranties, which may be cheaper when purchased from a third party.
“Once you have that approval, you’re basically taking that check to the dealership and it can become a good negotiation chip that you can use,” Davis said. “It’s incumbent on the consumer to make sure you realize everything that’s in your contract and don’t be afraid to ask questions.” FS
5 Discriminatory markups and lending have marred the car shopping experience for Black and Latino consumers for years. (Courtesy photo)
Building Generational Wealth in the Midst of Gentrification
By Lisa Miller Scott REALTOR®, GRI, SRS, CPRES, CDPE Board of Directors, Literacy Institute for Financial Enrichment (LIFE)
The nation’s capital is one of the most highly gentrified cities in the country according to a 2019 study by the National Community Reinvestment Coalition based on U.S. Census Bureau and economic data.1
This is particularly evident in Wards 7 and 8, where homeownership among Black residents has been declining at an alarming rate. This is owing largely to the proliferation of development projects targeting a younger, wealthier ‘Creative Class’ of millennials, ages 18-34. Certainly such initiatives have the effect of driving up housing values to a point where many would-be home buyers are priced out of the market, but what about homes that have been Black-owned for decades? Grandma’s house. Where is the generational wealth that could and should have been built from the time before gentrification took hold?
Although generational wealth - assets passed by one generation of a family to another - encompasses stocks, bonds, and other assets, as well as businesses; estimates suggest that as much as two-thirds of a typical American household’s wealth comes from homeownership.2 For various reasons, however, these properties, which could form the cornerstone of a wealthy legacy, often do not remain in the family past the original purchaser. Inherited properties are routinely liquidated in favor of short term cash over long term land holdings. Joint heirs may disagree on whether to keep or sell the home. There may be no one in the family who is able to take responsibility for the upkeep and property taxes. Younger heirs often prefer larger, more contemporary homes. And when they change hands, estate properties are frequently purchased by investors who renovate and resell them for much higher prices than many young, Black buyers are comfortably able to afford.
Here are some proven strategies that may help to build and retain wealth for yourself and for future generations, even in an age of changing neighborhood demographics. 1. Invest in the stock market 2. Invest in real estate 3. Build a business to pass down 4. Take advantage of life insurance 5. Create multiple streams of income 6. Pay yourself first
Passing the wealth baton to the next generation and allowing them to build on your efforts can take many forms: gifting the down payment for a primary home or investment property; enabling them to graduate from college debt-free, providing seed money for a business venture, proper estate planning to preserve assets that will become their inheritance; and mostly importantly teaching your children about personal finance and generational wealth so that they can carry the baton for the next leg of the race, no matter who’s in the house next door.
1National Community Reinvestment Coalition. “SHIFTING NEIGHBORHOODS: Gentrification and cultural displacement in American cities”
2Economic Policy Institute. “The racial wealth gap: How African-Americans have been shortchanged out of the materials to build wealth.”
Ms. Lisa Miller Scott is a Broker/ Owner with Elevation Realty, LLC in Lanham, Maryland.
Youth Money Matters: Young, Black, and Broke
By Deetra Whatley Board of Directors Literacy Institute for Financial Enrichment (LIFE)
I can be healthy, wealthy, and rich --- oops, I mean Wise; oh, that’s dope! Hmmmm, where can I go to get all three? Well, to be healthier, I can eat out less and cook more. Wisdom may come with life experiences, but what about wealth? I don’t know what wealth means? Isn’t wealth for rich, white people?
Wealth to me is spending my money on a beautiful crib, cute clothes, and nice restaurants. Well, what is my Net Worth? Do you mean what I Am Worth? The Michael Kors bag cost $300, my Gucci Slides $400, my hair $600, my mani and pedi $150, plus my Fashion Nova dress. I AM WORTH more than a $1,000, right?
One thousand dollars of Material Wealth? Gurl Bye. Material Wealth is Not your Net Worth. Material Wealth are things such as cars, clothes, shoes, furniture, and technology devices--THINGS that we may see among our neighbors, friends, family, and ourselves. Once money is spent on material things, that money is gone and the item may be worthless or worth a lot less. These items typically do not increase in value over time.
Net Worth is everything you own (assets) minus everything you owe (liabilities). Your assets include your house, checking and savings accounts, 401K, mutual funds, cash value of life insurance policies and cash. Your liabilities and expenses include your mortgage, rent, utilities, car loans, credit card balances, payday loans, medical and dental expenses, technology expenses, childcare, and student loan payments.
To begin to create wealth we need to understand what we own and what we owe. We can start with a spending journal to record everything that we spend our money on.
Now let’s take the time and answer the 3Ws and 1H. • HOW are we spending our money? • WHAT are we spending our money on? • WHERE are we spending our money? • WHY are we spending our money?
Begin making wise changes to your spending, and over time you may be able to change Young, Black, and Broke to Young, Black, and Wealthy.
Ms. Whatley has been a financial writer and educator for more than seven years, and has served as a DFree trainer and coordinator for several financial cohorts in the DMV.
