DETROIT -- The credit arm of General Motors reached an out-of-court settlement on Tuesday in a racial bias lawsuit that said it charged blacks more than whites for car loans.
The class-action lawsuit, which had been scheduled to go to trial this month, alleged that black car buyers collectively paid millions of dollars more interest for loans than whites even though they were just as creditworthy.
General Motors Acceptance Corp. agreed for three years to cap the mark-up in financing rates that dealers can charge consumers on car loans to 2.5 percent, or 2 percent for loans lasting longer than 60 months, the parties said.
Cutting the finance rate will save consumers an estimated $60 million a year, Darnley Stewart, a partner with the law firm of Bernstein Litowitz Berger & Grossmann, which represented plaintiffs in the case, told Reuters.
GMAC had also set a precedent by going below the 3 percent mark-up cap, which had become the industry norm, she said.
GMAC said in a statement that the settlement "preserves fair competition while taking new steps to provide GMAC consumers with the knowledge to make the most informed choice for their auto financing."
The case was one of several class-action lawsuits filed against major car loan companies in the United States alleging that their practices discriminate against minorities.
Japan's Nissan Motor Co. Ltd. agreed to cap its dealer mark-up when it settled a lawsuit charging racial discrimination in loan practices.
The finance arms of Ford Motor Co., Toyota Motor Corp. and DaimlerChrysler AG have been targeted by similar lawsuits.
The GMAC lawsuit was filed in 1998, when Stewart said some black consumers were charged finance rates as high as 33 percent on car loans.
The settlement included no payments to the plaintiffs, whose legal fees and expenses are capped at a total $9.6 million.
Stewart said GMAC had always argued that if it cut the mark-up on financing rates to less than 3 percent, dealers would use other lenders and GMAC would go out of business.
"Because they have the market power to do this, they've been the first to break the 3 percent mark-up barrier," she said.
GMAC also agreed to include language on the loan contract informing borrowers that they could negotiate the terms of the loan, and that the car dealership may keep a portion of the finance charge.
GMAC also agreed to contribute $1.6 million to consumer education efforts for credit financing, and to make efforts to market to black and Hispanic consumers.
GMAC set a goal of generating 1.25 million pre-approved credit offers to black and Hispanic consumers in the next five years. Those loans would include no dealer finance income.