Honda: Underreporting, Takata and the CFPB

Just hours after our report about the Consumer Financial Protection Bureau’s decision to investigate the lending arm of Toyota, a new report shows that Honda is their next target. In a regulatory filing Tuesday, Honda Motor Co. reported that the CFPB is poised to charge the automaker with violating existing laws. The CFPB reportedly feels that America Honda Finance Corp. may have charged higher interest rates to minority borrowers. In their SEC filing Tuesday, Honda explained that the CFPB has, “indicated that they are seeking monetary relief and implementation of changes to our discretionary pricing practices and policies.” Honda further stated that they wanted to cooperate with the bureau in order to find a “mutually satisfactory solution.” The probe by the CFPB is reportedly part of an investigation into both lenders and auto dealers. Their concern is that lenders and dealers are charging higher rates unfairly to minorities. How they decide that discriminatory lending is occurring has been the source of great confusion. When the CFPB went after Ally Bank in 2013 and fined them $98 million, they found them guilty of disparate impact, verses disparate treatment. CFPB statisticians drawing mathematical conclusions are reportedly able to discover disparate impact. Whether or not Honda ends up with fines or further regulation from the CFPB, this revelation is coming at a bad time. After all, tomorrow, they are facing congress.

In addition to being in the middle of this probe by a very active government financial regulatory organization, Honda is dealing with the Takata airbag crisis. Toyota, another company whose lending arm is being investigated by the CFPB has 877,000 vehicles subject to recall in the U.S. due to potentially faulty airbags. Honda has 5,051,364 and counting. At least two of the deaths and 30 of the Takata airbag-related injuries occurred in a Honda vehicle. The Executive Vice President of Honda North America, Rick Schostek, testified before the Senate Commerce Committee back on November 20th. He said that Honda would grant loaner cars to those who have to bring their recalled vehicles in for repairs. In response to his question about Honda drivers he simply said, “we will take care of our customers, sir.” How will potential customers respond to uncertainty surrounding very popular used autos? Data provided by iSeeCars indicates that as of 2013, Honda has two of the top ten most popular used vehicles, the Accord and Civic. The Honda Civic makes up 1.9% of the used car market and is number 4 on the list. The Honda Accord however tops that list representing 2.3%Â of the entire used car market and has a strong resale history. Will the Honda Accord’s future sales be impacted with the current list of recalls only expected to grow?

That list is expected to grow as more potential airbag victims come forward and as Honda sorts through its underreported data. We told you last week that Honda has acknowledged that it underreported serious injury and fatality accidents. That information came as the result of a third-party law firm audit. As more information about serious accidents surfaces and potentially is traced back to Takata airbags, what will be the consequences? In a perfect scenario, consumers could easily discover their vehicle needs to be recalled due to airbag concerns and have the work done, however that could prove difficult. Takata doesn’t have enough airbag parts to facilitate the current U.S. recall of 8 million vehicles at a consistent pace. If Takata is forced to do a nationwide recall, the dealership service backup, particularly for Honda vehicles could be substantial. We have reported on this topic numerous times. Where to do you see this recall headed and does it concern you? Do you support a national recall of Takata airbags or is that an overreaction by a the NHTSA who is seeking a public victory?