Auto Dealer Agrees To Landmark Reforms

Attorney General Spitzer today announced a landmark agreement with a Capital District auto dealer to reform the way car financing charges are calculated.

Under the agreement, Armory Nissan, Inc., will establish a flat-rate for finance charges commonly known as "markups" and provide complete disclosure of all such charges to customers. This agreement eliminates any racial disparities in markups, a problem that has been found in dealerships across the nation.

In a related development, Spitzer said he was introducing legislation to extend the reforms embodied in the Armory agreement to other dealerships across the state.

"I commend Armory for enacting a new finance charge system that is groundbreaking in the industry," Spitzer said. "These reforms provide a model of fairness and good business practices that all auto dealers should try to match or exceed."

Finance charge mark-up practices have been widely challenged in recent years, both by consumer and civil rights groups and in a series of lawsuits against various financing arms of auto manufacturers, including the Nissan Motor Credit Corporation and the General Motors Credit Corporation. Evidence presented in these cases and other studies demonstrates that this practice has a significant disparate impact on racial minorities.

For example, a recent report issued by the Consumer Federation of America found that African -American consumers paid on average between $350 - $500 more in markups than white consumers. Another study found that Hispanics pay an average of $266 in additional finance costs per loan over non-Hispanic loans.

Consumers are often unaware that the "buy-rate" - the interest rate for the financing offered by the financial institution based upon a consumer's credit history and loan duration - is subject to the assessment of additional percentage points by the dealer. Because auto dealers do not disclose the "buy-rate" offered by the lender, consumers often accept interest rates without negotiation, likely due to the misplaced assumption that the quoted interest rate is solely based on credit worthiness. The cost to consumers of these undisclosed markups can range from hundreds to even thousands of dollars.

Armory's agreement with Spitzer's office will last for the next three years. With limited exceptions, the flat-rate markup will be the same for each customer although the size of the markup may change over time. The initial markup rate will be zero percent.

In order to address this problem on a statewide level, Spitzer has proposed legislation that would require auto dealers to set a flat rate at which all consumers will be charged for the arranging of financing and to disclose any such charge. The proposed legislation arms consumers with important information with which to competitively shop and prevents any racial disparities since all customers would be charged the same amount.

If enacted, New York State would be the first state in the nation to eradicate racial disparities in markups and to require full disclosure of the full disclosure of the amount of such charges.

"The disclosures required in the legislation will aid vehicle purchasers in making informed decisions about whether to accept financing or to seek quotes from other lenders," Spitzer said. "In addition, requiring the same fee to be charged to all customers who receive assistance will eliminate racial disparities in markups."

This case was handled by Assistant Attorney General Brian J. Kreiswirth and Deputy Bureau Chief Natalie R. Williams, under the supervision of Bureau Chief Dennis D. Parker of the Civil Rights Bureau.

Consumers with complaints about this issue are encouraged to contact the Attorney General's Civil Rights Bureau by calling (800) 771-7755.


Rev. Jesse J. Jackson, Sr., President and Founder of Rainbow/PUSH Coalition stated: "For nearly four years the Rainbow/PUSH Coalition has sought to bring the issue of markup to the forefront of consumer awareness. African-Americans and Hispanics pay more not just for auto financing but also on items such as: mortgage loans, insurance, business loans, and credit cards. What compounds this economic profiling is that we still earn less nationally. Attorney General Spitzer's proposed legislation serves as a tremendous step in removing the cultural and class divides that separate America's underserved citizens from sustained wealth and access to capital."

New York State Assemblywoman Aurelia Greene stated: "As a person who has long fought predatory lending practices that have a particularly negative impact on minority communities, I applaud the Attorney General's effort to ensure that hidden fees imposed in auto financing are applied equitably to all vehicle purchasers."

Stuart Rossman, Director of Litigation for the National Consumer Law Center stated: "The New York Attorney General's proposed automobile finance disclosure bill levels the playing field. It doesn't stop dealers from collecting a flat fee that reasonably reflects the value of the services they provide but it does eliminate the price-gouging and loan rate mark-up discrimination that have plagued car loan customers for years. It's a fair solution to a serious problem."

Raul Yzaguirre, President of the National Council of La Raza stated: "New Yorkers are subjected to one of the highest costs-of-living in the nation and they, especially those in minority and lower-income neighborhoods, can ill afford to be subjected to unfair dealer mark-ups when purchasing a car. The Attorney General's innovative and ground-breaking proposal will at least ensure a level playing field for all car buyers in the State and could eventually pave the way to ending this discriminatory practice."