Plaintiffs Proved Loan Discrimination In Auto Financing Lawsuit, Court Says
By Andrew M. Ballard, BNA
RALEIGH, N.C.--The plaintiffs in a closely watched class-action alleging discrimination in lending practices by Ford Motor Credit Company and its brand name Primus Automotive Financial Services Inc. have proved their case, a federal judge said March 16 (Borlay v Primus Automotive Financial, M.D. Tenn., No. 02-CV-382, 3/16/05).
"What I have decided is that the plaintiffs have proved their case and that they will win in my decision," Aleta A. Trauger, judge for the U.S. District Court for the Middle District of Tennessee, said in a March 16 excerpt of proceedings released by the court. Trauger ordered the parties to attempt to reach a remedy or settlement in the matter.
The lawsuit alleges that the credit policies used by Primus resulted in minority customers paying more in finance charges than white customers for reasons other than creditworthiness, in violation of the Federal Equal Credit Opportunity Act. The case was said to be the first of its kind to go to trial, as similar lawsuits over lending policies of car dealer financing departments and their affiliated auto company lenders have been settled prior to trial (40 DER A-43, 03/2/05 ).
According to the Primus complaint, car dealers typically submit the customer's credit application to a lender who determines an approved interest rate by examination of the consumer's credit history. The lender then authorizes the dealer to add percentage points to the interest rate without notifying the customer, the complaint alleges.
The dealer and lender divide the markup as additional profit, according to the complaint. Such markups have a discriminatory impact on African American and Hispanic customers, the lawsuit alleges.
The case previously was known as Claybrook v., but plaintiff Latonya Claybrook was dismissed along with other plaintiffs from the lawsuit over statute of limitation issues and the lawsuit was renamed after Edwin Borlay, one of the remaining plaintiffs.
Among similar lawsuits that previously have been settled are claims against Nissan Motor Acceptance Corp., General Motors Acceptance Corp., and American Honda Finance Corp. The settlements impose limits on the markups of loans offered by the auto financing companies.
Settlement Still a Possibility
If the parties fail to reach an agreement for a remedy in the case, Trauger said she would impose one from the bench. Trauger gave the parties until April 18 to work out an agreement, with a status report on the negotiations due April 4.
"I would like to be no more intrusive than necessary," according to Trauger. "And so it seems to me that therefore the parties, particularly Primus, is in the best position to discuss with the plaintiffs the appropriate relief that could be ordered in this case if I end up having to do that," the judge said.
"Obviously, there's the possibility that in having these discussions, you will settle the case, and I will never enter an opinion or an injunction," according to Trauger. By participating in the negotiations, the plaintiffs are not waiving their right to appeal any decision made by the court, she said.
Stuart Rossman, litigation director for the National Consumer Law Center and attorney for the plaintiffs, told BNA March 17 that his group was "very pleased with yesterday's outcome." The judge's deadlines leaves "a very short time span" to conduct the remedy negotiations, he said.
Although the facts involved in similar lawsuits are different, the theory of law used is the same, according to Rossman. He said plaintiffs' attorneys are encouraged by the court's March 16 ruling, as it demonstrates that "we've tried a case and we were able to meet our [legal] burden."
In addition to Rossman, the plaintiffs are represented by Clinton W. Watkins, a lawyer based in Brentwood , Tenn. , Michael E. Terry, an attorney based in Nashville , Wyman O. Gilmore Jr. and John Barney, lawyers based in Grove Hill , Ala. , and John T. Crowder Jr. and Richard Edwin Lambeth, attorneys with the Mobile, Ala.-based law offices of Crowder & Brown.
Primus was represented during the trial by Anita L Whisnant, a corporate attorney, Thomas M. Byrne, Valerie S. Sanders, Rocco E. Testani, and Daniel H. Schlueter, lawyers with the Atlanta law offices of Sutherland, Asbill & Brennan.
Text of the judge's opinion and an excerpt of the proceedings in the automobile financing discrimination lawsuit are available from the district court at http://www.tnmd.uscourts.gov/borlay.html on the World Wide Web.
Judge: Ford Affiliate Charged Blacks More
By GARY TANNER, Associated Press Writer
NASHVILLE , Tenn. - A federal judge said Wednesday that the plaintiffs in a lawsuit had proved that a lending affiliate of the Ford Motor Co. discriminated against black customers by charging them higher rates on car loans. But the judge gave the two sides another 30 days to come up with a lan to end the practice and settle the case.
After a two-week trial, U.S. District Court Judge Aleta Trauger announced from the bench that she would rule against Primus Automotive Financial Services, a unit of the Ford Motor Credit Corp. But before issuing a final ruling, she asked both sides to negotiate for 30 days to draft a proposal on how to end the discrimination and said both sides could still agree to settle the case. "What I have decided is that the plaintiffs have proved their case and that they will win in my decision," Trauger said. She said by agreeing to negotiate, she said the defendants would not give p their right to appeal a final decision. "I am of the opinion that courts ought not to overly intrude and tinker in all the details of something like this. I would much prefer that I get a proposal from the parties here," Trauger said. "However, if I am put to it, I will decide how I will structure the remedy in this case."
The lawsuit lists 11 named plaintiffs, but attorneys said thousands of black customers were discriminated against and are included in the class. Attorneys said they were unfairly charged hundreds of thousands of dollars more than they should have been on car loans. The plaintiffs were not seeking damages in the case. Primus spokeswoman Meredith Libbey said in a statement following Wednesday's hearing that the company disagrees with the judge's conclusions. "We uphold the highest standards of fair lending. We do not believe the record in the case supports any finding of discrimination," Libbey wrote.
Lead plaintiff lawyer Clint Watkins said he was pleased with Trauger's comments. "We look forward to working with Ford Motor Credit on a solution," he said. The data used in the lawsuit was from 2001 and 2002, but Watkins said during the trial that discriminatory car loan practices have been common since the 1950s. Since 1998, there have been several lawsuits filed against auto financing companies, alleging discrimination against blacks. Those suits have resulted in five out-of-court settlements. The class-action suit against Primus was the first to go to trial.
The settlements in other cases have included the companies placing caps on the interest rate markups that dealers can make to loans and establishing "affirmative lending" programs for minority customers. Marking up a loan is a practice in which dealers add percentage points of interest to a loan and, in agreement with the finance company, get to keep most of the extra interest money.
In closing arguments Wednesday, Primus attorney Tom Byrne said the plaintiffs had sued the wrong people and should have targeted auto dealers. "Primus has no control over dealers in setting markups," Byrne aid. "That fact towers over all others in this case."
Ford shares fell 32 cents to close at $11.91 on the New York Stock Exchange.
Ruling could lead to lower rate markups
By Donna Harris
Automotive News / March 21, 2005
A landmark ruling against a leading subsidiary of Ford Motor Co. could encourage lenders to settle similar cases by placing lower ceilings on markups, industry attorneys say. The lawyers agree that last week's federal court decision against Primus Automotive Financial Services Inc. is a major blow to the industry.
U.S. District Judge Aleta Trauger of Nashville , Tenn., accepted the arguments of consumer advocates that dealership markups from wholesale interest rates promote bias against minority customers. The plaintiffs allege that Primus of Franklin, Tenn., which provides consumer loans through dealerships, authorizes "unchecked, subjective" markups. The nine black plaintiffs say Primus subjected them to discriminatory credit pricing when they financed cars at dealerships in several states between 1999 and 2002. Trauger last week said she will rule against Primus. But she gave Primus until April 18 to work with plaintiffs' lawyers to reach a voluntary agreement to settle the case. "The plaintiffs have proved their case," Trauger ruled. But she said: "The parties, especially the defendant, know a whole lot better what is workable than the court does." Primus attorney Thomas Byrne said in a closing argument last week that the plaintiffs should have sued dealerships rather than the lender. 'No control' "Primus has no control over dealers in setting markups," he said.
Plaintiffs' lawyers declined to comment on Trauger's ruling. They argued during the trial that Primus allowed dealerships to charge black customers higher markups than comparable white buyers. They cited a statistical study of more than 300,000 transactions involving various lenders with policies similar to those of Primus. Dealerships charged black customers an average markup of $970, compared with $462 for white buyers, the study concluded. The Primus case was the first in a series of such class actions to go to trial. Other industry defendants, including several large banks and the captive finance companies of General Motors and Nissan North America Inc., settled before trial. Ford spokeswoman Meredith Libbey said last week that Primus is disappointed with the ruling but appreciates the opportunity to work with the plaintiffs. Ford has not decided whether it will appeal the decision, Libbey said.
Ford voluntarily has capped markups at 2.5 percentage points over the wholesale rate its finance arm charges dealerships. Ford Motor Credit Co. traditionally has worked with Ford and Lincoln Mercury dealerships. Although Primus can finance any vehicle make, it generally has worked with other brands under the Ford Motor Co. umbrella, such as Mazda and Jaguar.
Pressure on lenders
Industry lawyer Kenneth Rojc of Chicago says the ruling probably will pressure lenders to settle similar lawsuits. Class actions are pending against Toyota Financial Services, DaimlerChrysler Services North America LLC and Ford Credit, he says. Other lawyers say the court is unlikely to eliminate dealership markups. Anne Fortney, a Washington , D.C., attorney who specializes in auto finance, says lenders in similar cases have negotiated ceilings on markups. Charles Ognibene, a lawyer in Boston who represents auto lenders, says Trauger "is giving Ford a chance to write its own sentence." He says: "The judge appears to be sensitive to the fact that the remedy may be difficult."
