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Car Finance Mark-Ups Hurt African Americans, Study Author Affirms

30 October 2000

Car Finance Mark-Ups Hurt African Americans, Study Author Affirms; Race, Not Credit Risk, Was a Factor

    NASHVILLE, Tenn., Oct. 27 The author of the study finding
that African-American car buyers paid millions of dollars more in car loans
than similarly situated white buyers says the only factor that explains the
difference is race.
    Dr. Debby A. Lindsey, a business professor at Howard University, analyzed
close to 15,000 loans from General Motors Acceptance Corporation and Nissan
Motors Acceptance Corporation.
    "Credit worthiness is not even an issue because it is already factored
into the buy rate. The only issue is whether the finance companies' policy of
allowing mark-ups beyond the buy rate has an adverse effect on African
Americans and I concluded that it does," said Dr. Lindsey.
    Two federal lawsuits charge the discrimination affected hundreds of
thousands of people who financed automobiles over the past 11 years. Lawyers
in the class action cases are seeking money back and a change in the auto loan
companies' practices.
    The suits claim that car dealers were encouraged by GMAC and NMAC, unknown
to most consumers, to inflate the costs of car loans for customers they
thought would pay higher rates.  The car finance companies and the dealerships
then split the additional revenue.  The plaintiffs' lawyers say it was that
policy which resulted in discrimination with blacks typically paying about 50
percent more in dealer mark-up than whites.  The complaints further allege
that the finance companies should have foreseen the results and immediately
ended the practice as soon as discrimination became apparent.
    Federal civil rights law allows for penalties against companies whose
policies lead to discriminatory lending or pricing, even if that
discrimination is inadvertent and if race is not directly referred to in the
policy.
    "The record shows that discrimination is bad or even worse for African
American car buyers with perfect credit," said Gary Klein, senior attorney
with The National Consumer Law Center in Boston, one of several lawyers and
law firms involved in the case.  "NMAC and GMAC may not know the race of their
borrowers, but they engage dealers to arrange the loan terms, and those
dealers definitely do know the borrowers' race.  We contend that the law makes
NMAC and GMAC responsible for all the terms of the loan including those
arranged by the dealers."
    Mr. Klein also said, "Mark-up charges shouldn't be secret.  The secrecy
encourages dealers to set up loans for consumers not with the lender that
offers the best rates, but rather with the lender that kicks back the most
mark-up."
    The suits against GMAC, concerning Tennessee car buyers, and the NMAC
suit, concerning buyers across the country, are both pending in the U.S.
District Court for the Middle District in Tennessee, which sits in Nashville.
Both cases were certified in August of this year as class actions.  The
federal Department of Justice appeared in court in support of the plaintiffs'
position.   The cases were filed two years ago under seal, but were recently
unsealed under pressure from national media.  ABC News' 20/20 will feature a
report on the investigation tonight (Oct. 27).
    Lawyers Clinton W. Watkins and Michael E. Terry of Nashville, Wyman O.
Gilmore of Grove Hill, Alabama, and the law firm of Bernstein Litowitz Berger
& Grossmann in New York are the other legal representatives of the plaintiffs
against the finance companies.  Bernstein Litowitz represented the plaintiffs
in the landmark Texaco race discrimination case.
    Should the suits prevail, the amount of penalties will be set by the court
and distributed to black car-buyers who financed with NMAC and GMAC and were
victims of discrimination during the last 11 years, Klein said.  The amount
could total $100 million or more in each of the two suits. Court rulings in
both cases have cleared the way for trial by rejecting NMAC and GMAC motions
to have the cases dismissed.  Presently, the NMAC case is scheduled for trial
in September 2001, and the GMAC case in February 2002.
    The federal brief in support of the plaintiffs' motion is on line at
http://www.usdoj.gov/crt/housing/documents/nissan1.htm.