Black Buyers Beware: How to Avoid the Retail “Black Tax”


I still remember the afternoon I went in search of a new car. Inside the Toyota showroom a Black salesperson casually strolled my way making amiable small talk. When I asked how much I could get off the sticker price (also known as the MSRP or Manufacturer Suggested Retail Price) he looked me straight in the eye and without flinching told me that the sticker price was the price I’d have to pay.

I don’t know what made me more furious, the fact that the salesman considered me too naive to know that the sticker price is an artificially inflated price that no savvy consumer should ever pay, or that perhaps the salesperson, seeing that I was Black, was targeting me as an easy mark?

Unfortunately, all too often, African-Americans and other minorities shell out more than their white counterparts just because of the color of their skin.

In the classic 1995 study, economists Ian Ayres and Peter Siegleman sent secret shoppers to nearly 200 Chicago car dealerships. The black and female shoppers were consistently quoted higher prices than their White male shoppers. Black males, in particular, were quoted prices nearly $1000 higher than White males.

And while the study is over 20 years old, recent accusations suggest that Black auto buyers still face the same challenges. The Consumer Financial Protection Bureau, for instance, recently reached a settlement with Honda over charges that the company charged African-American borrowers higher dealer markups for their auto loans than non-Hispanic white borrowers. Honda was forced to pay $24 million to victims of its discriminatory practices.

TNMMoneySaveCoinsHandsOnce they drive the car off the lot, African-Americans face even more discriminatory pricing. Motorists with good driving records living in Black neighborhoods pay far more than drivers elsewhere. According to a survey by the Consumer Federation of America, quoted premiums were as much as 70% higher for the drivers living in Black neighborhoods.

What I call the retail “black tax” applies to other large ticket items as well. Research data of over two million home sales in four metropolitan areas found that African-Americans and Latinos pay more for homes. “We find that black and Hispanic homebuyers pay premiums of about three percent on average across the four cities, differences that are not explained by variation in buyer income, wealth or access to credit,” The study’s authors concluded.

“We find that black and Hispanic homebuyers pay premiums of about three percent on average across the four cities, differences that are not explained by variation in buyer income, wealth or access to credit,”

But having to pay a premium for a home is not the only barrier to the American dream for people of color. African-Americans also pay higher rates when trying to obtain mortgages for those homes, even when they have similar creditworthiness as their white counterparts.


In 2012, the Justice Department reached a $175 million settlement with WellsFargo Bank. The bank was found to have pushed Black borrowers into subprime mortgage loans even when they qualified for less expensive and less risky conventional mortgages. This was not an isolated practice as research by the National Bureau of Economic Research reveals that African-Americans are 105% more likely than whites to carry high cost mortgages on their homes, even when controlling for credit scores and other factors.

Why are Blacks forced to pay more for the significant purchases in their lives? Clearly naked racism plays a part, but economist Robert J. Stonebraker suggests another reason:

“While dealers and/or salespeople may know little or nothing about a particular customer, they know quite a bit about statistical differences among races and genders.  They know that women and African-Americans typically enter the showroom with less information and less proclivity to bargain.  Although white males often salivate at the chance to lock horns with car dealers in a bargaining struggle, females and African-Americans may be unaware that bargaining is even possible.”

In essence, he argues that retailers may believe that customers of color are less knowledgeable about their intended transaction, and as such are more susceptible to being taken advantaged of. This a more nuanced, but equally damaging, form of prejudice.

This lack of information concerning the purchasing process is also alluded to by the researchers who noted the higher home prices paid by buyers of color.

“The relative inexperience of black and Hispanic buyers, due to the historically lower rates of home ownership among the black and Hispanic households, may contribute to the higher prices that they initially pay upon entering the market,” they noted.

The inevitable conclusion: As a consumer of color, car dealers, insurance agents, and mortgage brokers may assume that you are less knowledgeable about the process, and therefore ripe for exploitation

You have a target on your back. Either by way of implicit racism or the belief that because of your skin color you are a naive consumer, you are at risk of being taken advantage of financially.

You have a target on your back.

To avoid becoming a victim, flip the script. Knowledge is power. Take the time to become well-informed about any significant purchase you plan on making. My suggestion is that if you’re going to spend more than $5000 on any purchase, take at least two hours researching your intended purchase, paying particular attention to how much others are paying for the same product or service.

A little amount of planning and preparation in the beginning of the buying process will save you a significant amount of money down the road.

BMWK, how do you keep from getting ripped off when making a major purchase?

About the author

Alonzo Peters wrote 278 articles on this blog.

Alonzo Peters is founder of MochaMoney.com, a personal finance website dedicated to helping Black America achieve financial independence.

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