Car-Loan Rates Marked Up
More for Blacks, Report Says

By Caroline E. Mayer
Washington Post Staff Writer
Wednesday, October 1, 2003; Page E01

African Americans were almost three times as likely as whites to be charged markups on loans financed by General Motors Acceptance Corp., according to an analysis by an expert working for minority borrowers in a lawsuit against the nation's second-largest auto lender.

When charged a markup -- a higher-than-normal interest rate -- black borrowers paid an average of $1,229 in extra interest over the life of the loans, compared with the average of $867 paid by whites, the study of more than 1.5 million GMAC loans made between 1999 and April of this year concluded.

Black postal workers paid an average of $811 more than white postal workers to get car loans, the report said. Black teachers paid an average of $595 more than white teachers. Even black GM employees paid more than their white counterparts to get a loan, Vanderbilt University business professor Mark A. Cohen wrote in the report, filed Aug. 29 in U.S. District Court in Nashville.

"I have conducted numerous statistical tests of the data and conclude that the disparate impact against African-Americans cannot be explained by creditworthiness or other legitimate business factors," Cohen wrote.

GMAC spokesman James Farmer said the company is reviewing Cohen's report and didn't want to comment until after its lawyers question Cohen. "There are percentages and dollar amounts paid that we don't understand," he said.

Farmer said the company doesn't ask for a borrower's race in its credit applications. Cohen said in the report that he had access to 6.2 million GMAC transactions, but limited his analysis to the 1.5 million cases in which race could be determined, mostly through driver's licenses.

The report found the differences to be nationwide, although they varied greatly among states. The biggest difference was in Wisconsin, where blacks paid five times as much as whites in loan markups. In contrast, blacks paid 1.3 times as much as whites in California. Locally, blacks paid 3.4 times as much as whites in the District, 3.1 times as much in Virginia and 2.5 times as much in Maryland.

Cohen said the GMAC data also showed that blacks were less likely to be offered preferential interest rates. Thirty-six percent of African Americans received interest-free percent loans and other special financing incentives, compared with 61 percent of white borrowers. Similarly, black college graduates were less likely to be offered below-market interest rates on car loans for recent college graduates.

The lawsuit is one of a number of class-action cases that have been filed against major auto-loan companies around the country in recent years. They alleged that lenders' loan-approval policies gave car dealers the flexibility to increase rates, with the lender and dealer splitting the extra money.

A class-action lawsuit against Nissan Motor Acceptance Corp. was settled in February. Nissan agreed to tell consumers that interest rates on loans may be negotiable. Nissan also agreed to offer preapproved credit, with no markups, to 675,000 African Americans and Hispanic car buyers over the next five years.