Two
Car FinanceCompanies Sued for Racial Discrimination
Suit
Alleges GMAC and NMAC Through Dealers, Charged African-American Customers Millions
in Extra Interest
NASHVILLE, TN- African-American car buyers paid
millions of dollars more than similarly situated white buyers for car loans
over the past 11 years, and are suing over that discrimination, it was revealed
today.The discrimination affected
hundreds of thousands of people who financed automobiles, two federal lawsuits
charge, and lawyers in the class action cases are seeking money back and a change
in the auto loan companies' practices.
"Our complaints allege that General Motors
Acceptance Corporation and Nissan Motors Acceptance Corporation engineered and
participated in a discriminatory kickback system that materially hurt African-American
car-buyers," said Gary Klein, senior attorney with The National Consumer
Law Center in Boston, one of several lawyers and law firms involved in the case.
"We allege that they should have known
that their mark-up system would have a disparately negative impact on the black
community," Klein said.
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.
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.
Klein said the plaintiffs' statistical experts
found that blacks typically pay about 50 percent more in dealer mark-up.Although the mark-up is arranged by the dealers, it is collected by GMAC
or NMAC and kicked back as additional dealer compensation for arranging the
loan.Since only part of
the charge is kicked back, GMAC and NMAC profit from the hidden charges.
"The evidence is clear that these extra
charges have nothing to do with credit differences between white and black customers,
since compensation for risk is not an element of dealer mark-up," he said.
The complaint further alleges 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.
Under this incentive system, blacks were charged considerably
more than whites, a result the finance companies could have foreseen and should
have immediately ended as it 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.
"Based on our statistical evidence, blacks
were systematically and pervasively charged more than similarly situated whites,"
Klein added.
In one typical grouping of GMAC borrowers in
Tennessee, lawyers studied the amount in financing "mark-ups" charged
to a group of about 4,900 car buyers of all races.Whites in the group paid an average of $643
in mark-up, compared with $959 for blacks.The difference of almost 49 percent cannot be explained by anything other
than pervasive discrimination, and is a plain violation of federal law, the
lawyers argue.
Should the suits prevail, the amount of penalties
will be set by the court and distributed to all black car-buyers who used NMAC
and GMAC loans during the last 11 years, Klein said.The total amount could be $100 million or more.
The base amounts charged by the loan companies
were governed by objective criteria not related to race, Klein said, and are
not the subject of the lawsuit; only the mark-ups added by the dealers in cooperation
with the finance companies are at issue.
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.
GMAC or General Motors Acceptance Corporation
is a wholly owned subsidiary of General Motors Corporation since 1919, and operates
under the brand name of GMAC Financial Services.In addition to worldwide automotive financing, its major businesses are
insurance, mortgages and commercial finance (business-to-business lending).GMAC employs 27,000 people, according to the GM website
and NCLC