GM Loan Unit to Help Buyers as Part of Settlement
DETROIT — The financing arm of General Motors Corp. will contribute $1.6 million to fund programs geared toward educating and assisting minority consumers with credit financing, as part of a settlement of a class-action lawsuit charging racial bias in lending policies.
GMAC also agreed to a markup cap of 2.5 percentage points on loans with terms of as many as five years and a cap of 2 percentage points on extended-term loans.
The suit, filed in 1998 on behalf of plaintiffs in Tennessee, alleged that as a result of General Motors Acceptance Corp.’s policies, dealers routinely charged black consumers higher interest rates on auto loans than whites with similar financial histories.
Attorneys at the National Consumer Law Center in Boston, which represented the plaintiffs, hailed the settlement as “historic.â€
“Prior to this lawsuit, there were no limits on how much GM dealers could mark up loans,†said Stuart Rossman, an attorney for the center. “This settlement will save consumers tens of millions of dollars each year and will positively change the dynamics of dealer-arranged financing.â€
GMAC also will implement a new marketing initiative to reach out to black and Latino consumers and generate 250,000 preapproved credit offers each year for the next five years. If the goal is not reached, GMAC will continue until 1.25 million credit offers have been issued, the nation’s second-largest auto lender said.
A new disclosure also will be placed on the front of all contracts, near the signature line, stating that the annual percentage rate may be negotiable and that the seller of the vehicle may retain the right to receive a part of the finance charge.
There will be no payments to members of the class-action lawsuit.
Plaintiff attorney fees are capped at $9 million and expenses are capped at $600,000, both subject to court approval.
Mark A. Cohen, a professor at Vanderbilt University who analyzed GMAC transaction data for the law center, said the settlement could save GMAC customers more than $60 million, based on data examined for the lawsuit.
About 90,000 GMAC customers should benefit each year by receiving lower-rate auto loans, he said.
