Late in 2003, there was chaos in the auto financing business when it was discovered that GMAC, the second largest auto lender in the country, had made mistakes with car loan markups and interest rates (General Motors Acceptance Corporation).
In a report by Mark A. Cohen, a business professor at Vanderbilt University, it was said that African Americans were almost three times as likely as whites to be charged markups on GMAC car loans. When markups are added to car loans, the interest rate on the loan is usually higher than usual.
With these markup fees, black car loan borrowers usually paid an average of $1,229 more in interest than white car loan borrowers, who only paid an average of $867 more for the same loan. Cohen's analysis was based on a study of more than 1.5 million GMAC car loans made between 1999 and April of the same year Cohen filed his report.
According to the report, black postal workers paid an average of $811 more than white postal workers on their GMAC car loans. The report, which was filed on August 29 in U.S. District Court in Nashville, also said that black teachers were paid an average of $595 more than white teachers. Even black workers at GMAC paid more than white workers for their car loans.
Cohen wrote in his report, "I have done many statistical tests on the data and have come to the conclusion that the unfair treatment of African Americans cannot be explained by creditworthiness or other legitimate business factors."
There were different markup fees and interest rates for GMAC car loans all over the country. In GMAC car loan markups, black people in Wisconsin paid five times as much as white people. This was a big difference for people in Wisconsin. Cohen said in his report that GMAC data showed that black people were less likely to get special interest rates or even be offered them. Sixty-one percent of whites get loans with no interest and other special ways to pay for things, while only 36 percent of African Americans do.
GMAC's spokesman, James Farmer, said that the company is looking over Cohen's report. He said that the company won't say anything about their car loan policies until the review is done. He also said that GMAC doesn't ask about the borrower's race when they apply for a car loan and doesn't need to know that information.
Cohen said in his report that he could see 6.2 million GMAC auto loan transactions. But he only looked at 1.5 million cases in which he could tell the race from the driver's licence.
