GMAC denies charges of racial discrimination
Group is suing the finance company, alleging that blacks
are targeted for higher interest markups.

By LISA MUÑOZ
The Orange County Register
Wednesday, October 1, 2003

General Motors Acceptance Corp. denies charges in a consumer group's recent study that it discriminates on the basis of race in auto lending.

The report alleges that the finance company, a division of carmaker General Motors, engages in discriminatory lending practices that result in higher-interest car loans for blacks. The study, a statistical analysis of millions of car-loan contracts, was released last week by the National Consumer Law Center, which is suing GMAC.

It concluded that black borrowers on average pay more than two and a half times what whites pay in interest markups. Nationally, the average markup for blacks was $656, compared with $244 for whites. In California, among all borrowers, the top 100 markups ranged from $8,237 to $19,577, the study said.

"There's a zero (tolerance) policy on any type of discriminatory practices," said Jim Farmer, vice president of communications for GMAC. "We take these allegations very seriously."

Farmer said the company will review the report and seek a deposition this month from the report's author, Vanderbilt University management professor Mark Cohen.

"There's a number of allegations and percentages that we don't understand," Farmer said. "We want to get a clear understanding of how he got those numbers."

Still, the report highlights how little many consumers know about the car-financing process, said Rosemary Shahan, president of Consumers for Auto Reliability and Safety, a consumer advocacy group.

It's a common practice for dealers to "mark up" interest rates above what the finance company sets.

Automakers' "captive" lenders such as GMAC, Toyota Motor Credit, and Honda Motor Credit, authorize dealers to mark up the loans. Farmer stressed that the dealer, not the finance company, sets the borrower's annual percentage rate.

But Stuart Rossman, director of litigation at the National Consumer Law Center, said finance companies not only allow dealers to mark up the rate, they also share the markup with them.

"It's pure profit. It's purely subjective. It has no other basis other than the amount of profit they're able to secure from that particular customer," he said. "We're not talking about a $5 or $10 difference. The markups we're seeing here are in the hundreds and thousands of dollars."