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GMAC reaches settlement over race bias claims on loan terms

By Margaret Cronin Fisk
Bloomberg News

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Under the agreement, GMAC would change its policies on how much dealers can mark up interest rates, GMAC and plaintiffs' lawyer Wyman Gilmore said. The suit claims dealers charge black customers higher interest on car loans than white customers, adding an average of $350 to the cost of a car. General Motors wouldn't pay damages under the settlement, Gilmore said.

The settlement will cost General Motors, the world's largest automaker, in lost profits and market share for auto loans by driving some dealers to use other sources for financing car purchases, market analyst Art Spinella said.

"If GMAC puts caps on markups and the banks allow more, where do you think the dealers will go?" said Spinella, president of Bandon, Ore.-based CNW Marketing Research. "Conceivably GM could be facing tens of millions of dollars of lost profit. It would not surprise me to see GM's share of finance drop eight to 10 or 12 points."

With the accord, General Motors resolves allegations of racial bias in lending that have been leveled against several major automakers. Nissan's U.S. unit agreed in February to pay $35 million in compensation and alter lending practices to settle similar claims. The lending arms of Ford, Honda, DaimlerChrysler and Toyota also have been sued.

"There's a very small financial impact," said Steven Kus, a vice president with Hilliard Lyons in Birmingham, Mich., which manages about $250 million, including GMAC debt.

"Any negative fallout would probably be more an issue for the company's image," he said. "I'd assume that the level of sensitivity will be heightened at the credit units."

Settlement details, which U.S. District Judge Aleta Trauger has ordered filed with her court in Nashville, Tenn., by Monday, are still being worked out, Gilmore said.

GMAC spokeswoman Anne Marie Sylvester confirmed a "tentative agreement" has been reached and declined to discuss details because it hasn't been completed.

The settlement "will preserve fair competition, appropriate dealer flexibility and consumer choice and is in everyone's best interest," she said.

The suit was filed in federal court in Tennessee in 1998 on behalf of all black consumers who financed the purchase of vehicles through GMAC from May 1989 through the date of any judgment, Gilmore said. The class action was certified this month, which allows common claims to be heard at a single trial, and was scheduled for trial Feb. 17.

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