Ford car loans show racial bias, judge told

March 9, 2005 Tron Nick

Auto financing companies have long used marked-up car loans to charge higher interest rates, but plaintiffs' lawyers in a federal discrimination trial say black customers have suffered from the practice even more than whites. In opening statements Tuesday, plaintiffs' lawyer Clint Watkins said economists from Yale and Vanderbilt universities "will explain how African-Americans and Hispanics are seen in the industry as a prime profit opportunity." He said the black customers of Primus Automotive Financial Services, an affiliate of Ford Motor Credit Corp., were more than twice as likely as whites to be charged higher rates on car loans. But a lawyer for Primus said the evidence will show that blacks and whites were equally as likely to receive markups. Marking up a loan is a practice in which dealers add percentage points of interest to a loan and, in agreement with the finance company, get to keep most of the extra interest money. Since 1998, there have been several lawsuits filed against auto financing companies, alleging discrimination against blacks. Those suits have resulted in five out-of-court settlements. The class-action suit against Primus is the first to go to trial. Stephen Brobeck, executive director of the Consumer Federation of America, said the settlements have reduced the amount of interest all consumers in the United States will pay for vehicle purchases. "For instance, in the next year, it will amount to a savings of hundreds of millions of dollars," Brobeck said. The lawsuits have also alerted consumers - not just blacks - to the shady practice of auto loan markups, Brobeck said. Several other companies last month reached tentative settlements in similar lawsuits to have complaints against them dropped, including American Honda Finance Corp. General Motors Acceptance Corp. and Nissan Motor Acceptance Corp. have reached similar settlements within the past two years. The settlements have included the companies placing caps on the amounts loans can be marked up and establishing "affirmative lending," programs in which minority customers receive loans with no markups, Watkins said. [ more ] and [ more ]