Auto dealers would have to justify any finance profit of more than $500 on a retail sale under plaintiffs' plan to settle their racial bias lawsuit against Primus Financial Services Inc.
The plaintiffs call their proposal the least restrictive remedy that would resolve the federal lawsuit fairly. Primus says the plan would cost the captive finance company business.
Primus is a unit of Ford Motor Co. U.S. District Judge Aleta Trauger has ruled that dealers' markups of the wholesale loan rates that Primus charges discriminate against minority buyers.
Trauger, who is hearing the case in Nashville, Tenn., ordered lawyers for Primus and the plaintiffs to propose remedies.
The "business justification" proposal is a shift for plaintiffs' lawyers. They have settled similar bias lawsuits against other lenders by seeking a cap of 2.5 percentage points on dealer markups of wholesale interest rates.
Primus already imposes such a limit on markups. But Clint Watkins, a lawyer for the plaintiffs, argues this ceiling is inadequate.
"Our goal is to propose the least-restrictive remedy" that will end discrimination, Watkins said an e-mail to Automotive News. "The court has indicated it is considering a more stringent remedy."
Plaintiffs estimate that the average dealer markup for Primus loan customers is $498. Nearly three-fourths of Primus deals wouldn't require dealer justification, they say.
They note their proposal also would allow Primus to define how dealers must justify higher markups.
But Primus spokeswoman Meredith Libbey says the plaintiffs' plan would "add more paperwork for dealers."
"Dealers, not wanting to bother with that, will take their business elsewhere," Libbey told Automotive News.
Charles Ognibene, a Boston lawyer who represents financial institutions, agrees that the proposal "would adversely affect Primus in the marketplace."
Rosemary Shahan, president of the advocacy group Consumers for Auto Reliability and Safety, says the justification makes sense.
"I think in the long run, requiring justification will have a salutary effect by discouraging gouging of individuals because they are perceived as easy marks," Shahan said in an e-mail.
The nine plaintiffs in the case, who are black, say Primus subjected them to discriminatory credit pricing when they financed vehicles at dealerships in several states between 1999 and 2002.
The case is certified as a class action.
Trauger has scheduled final oral arguments in the case for Jan. 12.
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