Chris Kukla, vice president of the Center for Responsible Lending, said:
We are happy to see that BMO Harris Bank will no longer compensate car dealers through hidden interest rate increases. BMO Harris is ahead of its peers in ending "dealer interest rate markups," a common, virtually invisible practice that adds billions of dollars to the cost of car loans.
The bank's action comes in the wake of recent enforcement actions and guidance from the Consumer Financial Protection Bureau (CFPB). An enforcement action against Ally Bank in December 2013 found that borrowers of color paid more for their car loans than white borrowers, and the guidance warned that interest rate markups significantly increase the chance of fair lending violations.
CRL's research has shown that interest rate markups on car loans are significant. For auto loans made in 2009, we estimate that car buyers will pay $25.8 billion in extra interest due to markups. Find more information here.
For more information, contact Catherine An in DC at 202-349-2878 or catherine.an@responsiblelending.org.