PLAINTIFFS PROVED LOAN DISCRIMINATION IN AUTO FINANCING LAWSUIT, COURT SAYS

CLASS ACTION LITIGATION REPORT, Vol. 6, No. 6, March 25, 2005

Raleigh, NC - The plaintiffs in a a closely watched class action alleging discrimination in lending practices by Ford Motor Credit Company and its subsidiary Primus Automotive Financial Services Inc. have proved their case, a federal judge said March 16 (Borlay v. Primus Automotive Financial Services Inc., M.D. Tenn., No.02-CV-382, 3/16/05).

"What I have decided is that the Plaintiffs have proved their case and that they will win in my decision," Aleta A. Trauger, judge for the U.S. District Court for the Middle District of Tennessee, said in a March 16 excerpt of proceedings released by the court. Trauger ordered the parties to attempt to reach a remedy or settlement in the matter.

The lawsuit alleged that credit policies used by Primus resulted in minority customers paying more in finance charges than white customers for reasons other than creditworthiness- a violation of the Federal Equal Credit Opportunity Act. The case was said to be the first of its kind to go to trial, as similar lawsuits over lending policies of car dealer financing departments and their affiliated auto company lenders have been settled prior to trial (6 CLASS 168, 3/11/05).

Discriminatory Impact Alleged. According to the complaint against Primus, car dealers typically submit the customer's credit application to a lender who determines an approved interest rate by examination of the consumer's credit history. The lender then authorizes the dealer to add percentage points to the interest rate without notifying the customer, the complaint alleges.

The dealer and lender divide the markup as additional profit, according to the complaint. Such markups have a discriminatory impact on African American and Hispanic customers, the plaintiffs alleged.

The case previously was known as Claybrook v. Primus, but former named plaintiff Latonya Claybrook was dismissed from the lawsuit along with other plaintiffs over statute of limitation issues. Edwin Borlay, one of the remaining named plaintiffs, is now named in the case caption.

In similar cases, the following companies have settled: Nissan Motor Acceptance Corp., General Motors Acceptance Corp., and American Honda Finance Corp. The settlements impose limits on the markups of loans offered by the auto financing companies.

Settlement Still a Possibility. If the parties fail to reach an agreement for a remedy in the case, Trauger said she would impose one from the bench. Trauger gave the parties until April 18 to work out an agreement, with a status report on the negotiations due April 4.

"I would like to be no more intrusive than necessary," according to Trauger. "And so it seems to me that therefore the parties, particularly Primus, [are] in the best position to discuss with the plaintiffs the appropriate relief that could be ordered in this case if I end up having to do that," the judge said.

"Obviously, there's the possibility that in having these discussions, you will settle the case, and I will never enter an opinion or an injunction," according to Trauger. By participating in the negotiations, the plaintiffs are not waiving their right to appeal any decision made by the court, she said.

Stuart Rossman, litigation director for the National Consumer Law Center and attorney for the plaintiffs, told BNA March 17 that his group was "very pleased with yesterday's outcome." The judge's deadlines leave "a very short time span" to conduct the remedy negotiations, he said.

Although the facts involved in similar lawsuits are different the theory of law used is the same, according to Rossman. He said plaintiffs' attorneys are encouraged by the court's March 16 ruling, as it demonstrates that "we've tried a case and we were able to meet our [legal] burden."

In addition to Rossman, the plaintiffs are represented by Clinton W. Watkins in Brentwood, Tenn., Michael E. Terry in Nashville, Wyman O. Gilmore Jr. and John Barney in Grove Hill, Ala., and John T. Crowder Jr. and Richard Edwin Lamberth with the Mobile, Ala.-based law offices of Crowder & Brown.

Primus was represented during the trial by Anita L. Whisnant from the firm's legal department, and Thomas M. Byrne, Valerie S. Sanders, Rocco E. Testani, and Daniel H. Schlueter with the Atlanta law offices of Sutherland, Asbill & Brennan.