NY Spitzer steps up Fight against “Car-Finance Racial Bias”
N.Y. (AP) – State Attorney General Eliot Spitzer reached a deal with a
big Albany car dealership that he said Wednesday should prevent blacks
and Hispanics from being charged more than whites for financing.
said he hopes the agreement with the Armory Nissan dealership will serve
as a "template" for other dealers throughout the state who
want to eliminate all racial bias in financing charges for consumers.
said the agreement also will apply to the affiliated Chrysler, Jeep and
Suzuki dealerships at the sprawling Armory complex about five miles from
the state Capitol.
think this is really the appropriate way to deal with the issue of
markups and we hope that it will become the standard in the
industry," Spitzer said in a conference call with reporters
issue are the markups Armory, and most other dealers, apply to financing
deals on automobiles. These are typically added on to the interest costs
in a financing package, Spitzer said, though dealers are often far from
precise about the markups with consumers.
markups are legal, Spitzer said. They become illegal if they are applied
disparately between minorities and whites. The attorney general said
cumulative sales statistics for the auto industry as a whole suggest
there was a pattern of blacks and Hispanics paying more in markups than
higher charges don't appear to have been intentionally imposed on
minorities by the dealer, nor were they based on the creditworthiness of
consumers, Spitzer said.
the agreement, Armory has agreed to drop its markup to 0% and, later, to
go no higher than 1%, Spitzer said. Armory also agreed to make its
paperwork clearer so there is no question about whether the markup is
being applied and how much it is costing consumers.
attorney general said that should drive business to the Armory
dealerships because of lower finance charges and better disclosure.
good for business," Spitzer said. "It's good for civil rights.
It's good for consumers."
President Donald Metzner said he had "very positive"
conversations with Spitzer's office from the start and that he believes
the agreement will be adopted by dealerships throughout the state, if
it's not set in law by the state Legislature first.
is really an industry wide practice and it is time for it to end,"
Metzner said. "I could have taken an adversarial position, but I
agreed with him and worked on something that all dealers could
was no pattern of discrimination at Armory, Metzner said. Armory dropped
the markup charge even before reaching the deal with Spitzer, according
agreement with Armory is the first time he has publicly entered what has
been a national debate over whether minority consumers are being charged
more than whites through markups. A recent national report from the
Consumer Federation of America found black consumers paid an average of
$350 to $ 500 more than whites through financing markups.
class-action suits have been filed against finance charge bias, Spitzer
spokeswoman Christine Pritchard. Two of the suits, involving Nissan's
financing arm and the General Motors Acceptance Corp. (GMA.XX), have
been settled. Nissan agreed to limit its markup to 3% and GM to 2.5%,
some attempt was made in the Nissan case to set up a restitution fund
for consumers, Spitzer said it is a very complicated issue and that his
agreement with Armory doesn't include a way for customers to get back
disparately high markups.
said he has filed a proposed bill in the Legislature that would set the
finance charge markups according to the model included in the Armory
truth-in-financing auto law proposed
"Truth In Auto Financing" law would force dealers to disclose
how much they charge consumers above the interest rate the dealer pays
to obtain a loan. The proposal came after sworn statements unsealed in a
federal lawsuit revealed DaimlerChrysler finance officials asked the
race of applicants before deciding whether to finance a car.
markups by auto dealers are the hidden cash cow of the auto
industry," Attorney General Lisa Madigan said. "They are
discriminatory and unfair."
About half the
16.7 million cars, vans, light trucks and sport-utility vehicles sold in
advocates say with a new vehicle selling for an average $22,000,
financing adds about $1,868 on a five-year loan. Typically dealers mark
up the interest rate by 3 points to around 8.5 percent.
hidden finance kickbacks typically add at least $1,000 to the cost of an
auto loan, and are costing consumers as much as one billion dollars
annually," said Stephen Brobeck, executive director of the Consumer
Federation of America.
said in a report titled, "The Hidden Markup of Auto Loans: Consumer
Costs of Dealer Kickbacks and Inflated Finance Charges," that
dealers markup around 25 percent of new vehicle loans, and that
African-American, Hispanic and women consumers are disproportionately
likely to pay higher interest rates on loans.
auto dealer marks up the interest rate provided by the lender, that
markup is not based on a consumer's credit score; it is based on a
dealer's desire to make above and beyond what is justified by
risk," Madigan said. "This is discrimination disguised as the
cost of doing business."
Acceptance Corporation and Ford Motor Credit Corporation finance about
44 percent all vehicles sold in the
said one in four of 1.5 million GMAC customers received marked up loans
from January 1999 through April 2003. A quarter of 1.5 million Ford
Financial customers paid a markup from November 1997 to December 2001,
and as many as half of a sample of 310,000 Nissan Motors Acceptance
Corp. customers were assessed a markup from March 1993 to September
were more than twice as likely to receive a higher interest rate.
depositions in a year old class-action lawsuit filed against
DaimlerChrysler showed top officials at the Chrysler Financial Chicago
zone operation regularly used racial slurs to refer the African-American
employees and customers.
Financial manager David Schultz recalled comments made by his ex-boss on
a Martin Luther King holiday in his testimony.
that sticks out in my mind that disturbed me and probably other people
in the room was, we were in collections and it was Martin Luther King
Day and the delinquency was high and, you know, we were off, and he
didn't like that and he just said, 'Hey, let's shoot four more and give
us a whole week off,' along those lines," Shultz testified.
said Chrysler does not tolerate racial bias of any kind and that its
lending policy is colorblind.
read the depositions, nobody could possibly believe that an office
inundated with so much racism could not have an effect on the people
that are in there making the credit decisions as to whether or not to
lend money to minorities," former Dodge-Chrysler dealer Gerald
Gorman told WFLD-TV Thursday. "There's no way it did not have an
effect on the way the
Gorman said he
would not have invested in Chrysler dealerships "If I had known
that one of the prerequisites to being a Chrysler dealer was that you
couldn't sell cars or try to finance" loans to minorities.
an attorney for plaintiffs suing the Chrysler, said the remarks showed
one of the largest automobile dealers and financial companies in the
world "engaging in blatant racism and discrimination against blacks
and overtly asserting it and saying so to the employees.
culture of the company," he said.
referred to the consumer federation's report which showed minority car
buyers often are charged higher interest rates than whites to finance
vehicles at dealerships and by other lenders, even if they had credit
scores comparable to whites.
requires consumers to be told the annual percentage rate of a loan, but
a dealer is not required to reveal his markup.
is entitled to a profit, and I don't know of any other business in which
a profit margin has to be disclosed," Jerry Cizek, president of the
Chicago Automobile Trade Association, which puts on the annual Chicago
Auto Show, told the Chicago Tribune.
Last updated: April 7, 2004
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