LEGAL FILE

Ex-Mitsubishi dealer plans to fight inclusion in suit charging loan discrimination

Related Links
Related Topics

A pretrial conference is scheduled Dec. 17 in a Justice Department discrimination suit accusing a Los Angeles Mitsubishi dealership, now closed, of illegally giving less favorable loan terms to non-Asian borrowers.

Earlier this year, the Ninth U.S. Circuit Court of Appeals reinstated the Equal Credit Opportunity Act suit against Union Auto Sales Inc., which did business as Union Mitsubishi.

The corporation has dissolved, paid its creditors in full and has no assets, dealership lawyer Roy Weatherup of Los Angeles said.

Weatherup said he will oppose any government effort to amend the complaint to add the sole owner personally as a defendant.

Co-defendant Han Kook Enterprises Inc. in Garden Grove, Calif., was dropped after it petitioned for bankruptcy protection while the appeal was pending. It did business as Garden Grove Hyundai, Han Kook Imports, Han Kook Motors, Los Angeles City Hyundai and Vermont Chevrolet.

Co-defendant Nara Bank of Los Angeles settled. Union Mitsubishi had originated 21 percent of the loans in the bank’s indirect automobile lending program, while the Han Kook dealerships accounted for about 40 percent of Nara’s loans.

The government reviewed Nara’s loans involving other Los Angeles-area dealerships but none were sued.

Nara is now part of BBCN, the largest Korean-American bank in the United States. It agreed to return up to $410,000 to non-Asian borrowers who paid higher markups than similarly situated Asian borrowers and to spend at least $100,000 annually on consumer financial education, according to the Justice Department. The department said it made extensive efforts to locate non-Asian borrowers and that it distributed about $345,000 to them.

Lower-court dismissal

A lower-court judge had dismissed the case, saying the government failed to make a plausible argument that the dealerships’ lending practices had a disproportionate impact on non-Asians.

But a 2-1 appeals court majority said the government’s complaint was specific enough to put Union Mitsubishi on notice about the claims.

The suit alleges that the dealership “gave its employees discretion to set overages within broad parameters” and that employees exercised that discretion “in a manner that discriminated against non-Asian borrowers.”

The court said: “That the complaint pleads discrimination against non-Asians -- instead of against Asians -- is irrelevant. The Equal Credit Opportunity Act protects individuals, not groups, and discrimination against a single applicant on a basis prohibited by the law violates the law.”

The court said the dealership’s motives are irrelevant.

Weatherup said the appeals panel “dodged the real issues”: Can a credit discrimination claim be based solely on statistical evidence, and was the law intended to protect the majority against discrimination in favor of a small minority who had been previously subject to discrimination?

“Discretionary ‘overages’ ”

The suit alleges that Union Mitsubishi let its sales staff “add discretionary ‘overages’ -- subjective markups unrelated to any creditworthiness standards -- to financing contracts, which resulted in a pattern of discrimination against non-Asians.” However, Weatherup said the only employees involved in the financing process at the time were Hispanic.

The court said a government analysis of loan files found that Union Mitsubishi’s “non-Asian borrowers were charged mean overages approximately 35 to 155 basis points higher than Asian borrowers” and that the differences “cannot be explained fully by factors unrelated to race or national origin such as differences in the customers’ creditworthiness.”

But Weatherup said statistical differences can be explained by such facts as that many Asian clients are Korean businessmen who live in more affluent neighborhoods, while many non-Asian customers are less affluent Hispanic residents from the neighborhood.

You can reach Eric Freedman at freedma5@msu.edu.

Have an opinion about this story? Click here to submit a Letter to the Editor, and we may publish it in print.

Or submit an online comment below. (Terms and Conditions)