Gov. Davis Signs Predatory Lending Law Protecting Hispanic Consumers

SACRAMENTO, Calif. (AP) July 16, 2004 - Gov. Gray Davis has signed the first legislation in the nation attempting to curb the predatory auto lending practice of inflating car loan interest rates.

The so-called "markups'' on interest rates often target minorities and are hidden in sales contracts, and are never disclosed to car buyers.

Consumer groups say the extra charges add an average of $2,100 to the cost of a new car.

The bill signed Monday requires dealers to retain documents that can allow regulators to better track patterns of predatory lending.

"Many consumers are deceived into paying excessively high interest rates when purchasing a car, especially Hispanics,'' Davis said in a statement posted on the state's Web site. "This bill will allow the attorney general to end a practice that tacks on thousands of dollars to the price of a car.''

The governor's office confirmed Wednesday that the measure is the first to take aim at predatory auto lending.

Supporters of the bill, including Consumers Union and Consumers for Auto Reliability and Safety, argue that car dealers have substantial incentives to charge customers the highest possible financing rate. They say lenders offer "kickbacks'' to dealers for raising the interest rate for customers.

The groups argue that the practice takes "unfair and allegedly fraudulent advantage'' of customers' lack of information, signing them to higher rates than they might have received elsewhere. Several recent lawsuits related to the practice have charged that minority consumers are the most likely to be overcharged.

In February, Nissan's financing arm agreed to offer "no markup'' car loans to qualified minority buyers

That agreement was in response to a 1998 class-action federal discrimination lawsuit filed by 10 black and Hispanic car buyers from Tennessee and Florida, who said Nissan Motor Acceptance Corp. charged them higher interest rates on car loans than whites with similar credit ratings.

Studies prepared for the plaintiffs by researchers from Yale and Vanderbilt universities showed that rates for minorities could be 30 percent to 50 percent higher than what whites paid. Nissan had called the research flawed.

Predatory lending costs borrowers more than $9 billion a year in excessive fees and interest rates, according to a 2001 study of banking data by the North Carolina-based Coalition for Responsible Lending.