June 13, 2003
NISSAN MOTOR ACCEPTANCE CORPORATION SETTLES SUIT BASED ON ALLEGED DISCRIMINATORY DEALER MARKUPS
On March 27, 2003, the United States District Court for the Middle District of Tennessee approved a settlement agreement between Nissan Motor Acceptance Corporation (NMAC) and classes of African‑American and Hispanic car buyers (Plaintiffs). The Plaintiffs alleged that NMAC’s practice of compensating dealers by permitting them to markup the applicable annual percentage rate beyond NMAC’s buy rate had a disparate impact on African‑American and Hispanic car buyers in violation of the federal Equal Credit Opportunity Act, 15 U.S.C. §§ 1691 et seq. (ECOA). Specifically, Plaintiffs alleged that the imposition of the markup violated ECOA because (i) African‑Americans and Hispanics were more likely to be marked up than white applicants, (ii) the average markup on contracts of African‑Americans and Hispanics was higher than the average markups on contracts with white applicants and (iii) such findings could not be explained by legitimate risk based differences or differences in the cost of service provided. NMAC maintained that its credit pricing policies did not violate ECOA.
Pursuant to the terms of the settlement, NMAC has agreed to take the following actions during the term of the settlement:
- Limit the amount of the markup that may be imposed in connection with accepted contracts;
- Pay $1,000,000 to the America Saves campaign, which will be used to educate African‑American and Hispanics about automobile financing;
- Send brochures to certain existing customers in order to educate them about automobile financing and the America Saves program;
- Include a disclosure in retail installment contracts informing buyers that the annual percentage rate is negotiable;
- Educate dealers on the requirements of ECOA and the importance of compliance;
- Institute a program whereby preapproved offers of credit with no markup would be offered to African‑American and Hispanic carbuyers;
- Pay $60,000 to the class representatives and not oppose class counsel’s request for attorneys’ fees of $6,000,000 and costs of $490,000.
A number of similar lawsuits alleging that dealer markup practices violate antidiscrimination laws have been filed and are still pending.
Based upon the above, it may be advisable for automobile sales finance companies and other lenders to modify their credit pricing policies and procedures as well as their loan forms in order to avoid legal challenges based upon violations of state and federal antidiscrimination laws. As illustrated by the settlement entered into by NMAC, such modifications may include, among other things, adding disclosures to loan agreements to inform borrowers of the negotiability of the applicable annual percentage rate. Before adopting such an approach, however, it is critical that a lender determine whether such modifications are permitted by applicable federal and state law in order to avoid any additional legal challenges.