Late in the year 2003, the auto financing industry experienced a pandemonium when several discrepancies in auto loan markups and interest rates were found in the nation’s second largest auto lender, GMAC (General Motors Acceptance Corporation).

In a report filed by Vanderbilt University business professor Mark A. Cohen, African Americns were said to be almost three times as likely as whites to be charged markups on auto loans which GMAC financed. When markups are added to auto loans, the borrower is generally charged a higher-than-normal interest rate.

With these markup charges, black borrowers generally paid an average of $1,229 in extra auto loan interest while whites paid only an average of $867 on the same loan financed by GMAC. Cohen’s analyses was based on the study of more than 1.5 million GMAC auto loans made between 1999 and April of the same year Cohen filed the report.

The report said that black postal workers paid an average of $811 on their GMAC auto loans more than white postal workers. The report, which was filed Aug. 29 in U.S. District Court in Nashville, further stated that black teachers paid an average of $595 more than white teachers. Even black employees of GMAC paid more on their auto loans compared to their white counterparts.

In his report, Cohen wrote, “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.”

The differences in GMAC auto loan markup charges and interest were found to occur nationwide. Wisconsin residents experienced the big difference where blacks paid five times as much as whites in GMAC auto loan markups. Cohen said in his report that based on GMAC data, blacks were less likely to receive preferential interest rates, let alone be offered. Sixty-one per cent of whites receive interest-free percent loans and other special financing incentives compared to thirty-six per cent of African Americans.

James Farmer, the GMAC spokesman, said that the company is reviewing Cohen’s report. He said that the company does not want to comment on their auto loan policies until such a time that they finish the review. He also said that GMAC does not ask for the race of the borrower in their auto loan applications and they don’t require that information from them.

In his report, Cohen said that he had access to 6.2 million GMAC auto loan transactions. However, he limited his analysis to 1.5 million cases where he could determine the race through driver’s licenses.