The Auto Channel
The Largest Independent Automotive Research Resource
The Largest Independent Automotive Research Resource
Official Website of the New Car Buyer

Two Car Finance Companies Sued for Racial Discrimination

23 October 2000

Suit Alleges GMAC and NMAC, Through Dealers, Charged African-American Customers Millions in Extra Interest
    NASHVILLE, Tenn. - African-American car buyers paid millions of dollars 
more than similarly situated white buyers for car loans over the 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.
    NMAC is a subsidiary of Nissan Motors Corp.

    The federal brief in support of the plaintiffs' motion is on line at
http://www.usdoj.gov/crt/housing/documents/nissan1.htm.