Ford Motor Credit must restructure its lending practices after a federal judge found that the automotive lending giant has been discriminating against its minority customers.
At the conclusion of a two-week bench trial in Nashville, U.S. District Judge Aleta Trauger told attorneys yesterday that she intended to rule in favor of the African-American plaintiffs.
Rather than issuing a verdict, the judge ordered the parties to start negotiating a settlement that will resolve the plaintiffs' claims: that the lending arm of Ford has been routinely charging higher fees to minorities, regardless of those customers' creditworthiness.
"However, if I am put to it, I will decide how I will structure the remedy in this case," Trauger said yesterday from the bench. "What I have decided is that the plaintiffs have proved their case and that they will win in my decision."
It is one of 11 cases in which consumers have filed suits against automotive lenders claiming discrimination. Seven have been settled, and all have been filed in U.S. District Court in Nashville.
The current case against Primus, Ford's lending arm, has been the only one to go to trial.
Ford has insisted that its policies were not discriminatory. Its attorneys said during opening arguments that they were eager to try their case.
A central issue in the case was the "markups" that are added to a customer's auto loan rate.
Lenders use two numbers to create the annual percentage rate familiar to consumers. One is the buy rate, which factors in a customer's credit score. The other part is the markup, an extra and profitable percentage that is split between the dealer and the lender.
The plaintiffs' experts contend that Ford has engaged in price gouging — and has done so because it can get away with it.
While markups are not illegal, they hit minorities harder, making them discriminatory, the plaintiffs charged. They argue that the dealers and Primus do not disclose, as some lenders do, the factors that go into setting the customer's APR.
Ford continues to insist that its policies were fair. "We uphold the highest standards of fair lending. We have been out in front on equal employment opportunity, affirmative action and minority economic development throughout our history," Ford spokeswoman Meredith Libbey said. "We do not believe the record in the case supports any finding of discrimination by Primus or its policies."
Any settlement will be multifaceted, according to Michael Terry, a Nashville attorney who is part of the plaintiffs' legal team.
"There's a whole spool of things that can be used," he said yesterday.
Caps on the markups could be lowered. Affirmative-lending policies could be instituted, in which Ford might guarantee no-markup loans in minority communities. Training programs could be required for dealerships. Ford could be required to establish a self-auditing program, similar to those now in use in some banks, to make sure that there are no disparities in lending rates.
"And there could be more and better disclosure, making sure the consumer knows that they can negotiate the dealer's markup," Terry said.
Any satisfactory settlement, he said, probably would be a mix of those elements.
Trauger has ordered both sides to come up with a joint proposal for a remedy by April 18.
By taking part in the negotiations, the defendants will not be waiving their right to appeal her ruling, Trauger said.
The plaintiffs were not seeking damages, although Primus would have to pay attorney's fees.
U.S. District Judge Aleta A. Trauger's order in the case Borlay vs. Primus Automotive Financial can be found in its entirety on the Internet at http://www.tnmd.uscourts.gov/borlay.html.