Car Loans
GMAC Car Loan
The year 2003 saw the auto financing industry in an uproar as several discrepancies were found in the nation’s second largest auto lender’s GMAC car loan markups and interest rates.
A Vanderbilt University business professor by the name of Mark A. Cohen filed a report saying that African Americans were said to be almost three times as likely as whites to be charged markups on GMAC car loans. When markup is added to a GMAC car loan, generally the borrower is charged an interest rate that is higher than normal.
Because of the markup charges on their GMAC car loans, black borrowers paid an average of $1,229 in extra GMAC car loan interest while their white counterparts paid only an average of $867. Cohen based his analyses on his study of more than 1.5 million GMAC car loans made between 1999 and April of 2003. He further stated that he had access to a number of GMAC car loans more than that (close to 6.2 million), but he only used the 1.5 million cases where he could determine the race through driver’s licenses.
According to his report, black postal workers paid an average of $811 on their GMAC car loans more than white postal workers. Filed on August 29 at the U.S. District Court in Nashville, the report also showed that black teachers paid an average of $595 more than white teachers. Even General Motors employees paid more for their car loans compared to whites who are fellow employees.
“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 concluded in his report.
Upon closer inspection, it was found that these discrepancies in GMAC car loan markup and interest charges occurred nationwide. The state of Wisconsin had the biggest difference where blacks paid five times as much as whites in GMAC car loan markups. Blacks were also less likely to receive preferential interest rates. Only thirty-six percent of African Americans received interest-free percent GMAC car loans and other special financing incentive while sixty-one percent of white borrowers enjoyed that.
GMAC spokesman James Farmer responded that the company is still in the process of reviewing Cohen’s report. The company would not comment for the moment until such a time that their review is finished. He further stated that the company does not ask for the race of the borrower in their GMAC car loan applications and they don’t require that information from them.