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NY Spitzer steps up Fight against “Car-Finance Racial Bias”

ALBANY, 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.

Spitzer 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.

Spitzer 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.

"We 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 Wednesday.

At 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.

The 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 whites.

The 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.

Under 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.

The attorney general said that should drive business to the Armory dealerships because of lower finance charges and better disclosure.

"It's good for business," Spitzer said. "It's good for civil rights. It's good for consumers."

Armory 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.

"This 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 adopt."

There was no pattern of discrimination at Armory, Metzner said. Armory dropped the markup charge even before reaching the deal with Spitzer, according to Metzner.

Spitzer's 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.

Thirteen 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%, Spitzer said.

While 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.

Other New York dealerships are being investigated, Spitzer said.

Spitzer 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 agreement.

Dow Jones Newswires 03-31-04 1625ET Copyright (C) 2004 Dow Jones & Company, Inc. All Rights Reserved.

First truth-in-financing auto law proposed

CHICAGO , Jan. 29 (UPI) -- Illinois ' attorney general has proposed the nation's first truth-in-lending auto financing law to require dealers to fully disclose how much they make on the markup on loan interest rates.

The "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.

"These 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 the United States in 2003 were financed at dealerships.

Consumer 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.

"These 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.

The federation 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.

"When an 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."

General Motors Acceptance Corporation and Ford Motor Credit Corporation finance about 44 percent all vehicles sold in the United States .

The report 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 2000.

African-Americans were more than twice as likely to receive a higher interest rate.

Two lengthy 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.

Chrysler Financial manager David Schultz recalled comments made by his ex-boss on a Martin Luther King holiday in his testimony.

"The one 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.

A spokesman said Chrysler does not tolerate racial bias of any kind and that its lending policy is colorblind.

"If you 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 Midwest was run for years and years."

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.

Eugene Pincham, 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.

"It's the culture of the company," he said.

Madigan 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.

Federal law requires consumers to be told the annual percentage rate of a loan, but a dealer is not required to reveal his markup.

"A dealer 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

©2004 The Dayton Defender All rights reserved.


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