Accusations of predatory lending and discrimination directed at subprime lenders are nothing new. Now, though, a federal judge in Chicago is letting an auto borrower pursue an Equal Credit Opportunity Act claim of race plus gender bias against Santander Consumer USA Inc.
The judge, however, tossed out plaintiff Joyce Pettye’s related claims under the federal Truth in Lending Act and the Illinois Motor Vehicle Retail Installment Sales Act.
In March 2015, Pettye, who is African-American, bought a 2012 Ford Focus for $13,000 from Al Piemonte Supercar Outlet in Northlake, Ill., according to the decision. The store assigned her retail installment sales contract, with a 27.06 percent interest rate and $29,785 total sale price, to Santander.
The suit contends the dealership failed to provide information or full disclosure about an $895 GAP addendum and that the store “imposed” the GAP coverage “as a result of Santander’s discriminatory practice of encouraging dealers to aggressively market such add-ons and interest rate markups after approving the deal at the buy rate when selling to African-American women,” according to the decision.
The suit also alleges that the GAP addendum is “void and worthless” because it imposes program limits that include a maximum APR of 24.00 percent and that the APR on the retail installment contract exceeds the program limit.
Last week, U.S. District Judge Amy St. Eve ruled that the ECOA claim is “plausible on its face” and can continue.
That claim contends that although Santander’s discretionary credit pricing policy may be neutral on its face, it has a “disproportionately negative effect” on black women. It also alleges that “the disparities between the terms of the credit transactions involving African-American women and the terms involving white consumers, and white men specifically, could not have occurred by chance and cannot be explained by factors unrelated to race and gender.”
The suit cites data from the Consumer Financial Protection Bureau and other sources indicating that “black women pay far higher interest rates and are saddled with more add-on charges than any other group, including white men” when borrowing from indirect lenders such as Santander.
The judge held that Pettye provided a sufficient factual basis to show that she was injured by Santander’s purportedly discriminatory credit pricing and markup policies, “including that she paid an inflated interest rate in financing her car and paid for a GAP insurance policy that she alleges is worthless.”
Plaintiff’s lawyer, Christopher Langone of Chicago, told Automotive News: “We’ve been investigating Santander for years. We believe this is a kind of ideal test case to explore the significant impact of the intersection of race and gender.”
It’s too soon to estimate the size of the potential national class of black women who obtained financing from Santander, Langone said. The next steps in the litigation are discovery and a motion to certify it as a class-action suit, he said.
In court papers, Santander unsuccessfully challenged the adequacy of Pettye’s general statistical data and argued that Pettye presented no evidence that the lender knew her race or gender.
Langone said: “We will hire as many statistical experts as are necessary to prove this case.”
As for the truth-in-lending and state financing law claims, the judge found insufficient evidence to support Pettye’s charge that Santander failed to make the required disclosures with respect to the $895 GAP fee. The written disclosure above Pettye’s signature line clearly and conspicuously said GAP coverage was voluntary, the judge said, and she concluded that Santander, as the assignee, isn’t liable for the dealership’s erroneous inclusion of the $895 GAP fee in the “amount financed” part of the retail installment sales contract.
She also said Petty’s assertion that the GAP coverage was “worthless and illusory” is a matter of contract law unrelated to the Truth in Lending Act.
Pettye didn’t sue Al Piemonte Supercar Outlet, but Santander said in court papers that it will bring the dealership into the case. Langone said Pettye may seek an individual settlement with the store.
A Santander spokeswoman said the company does not comment on litigation.
You can reach Eric Freedman at firstname.lastname@example.org