By Michael Ellis
DETROIT, Jan 30 (Reuters) - GMAC, the finance unit of automaker General Motors Corp. , has reached a tentative settlement in a lawsuit claiming its lending practices discriminated against black consumers, the company and lawyers involved in the case said on Friday.
"GMAC has reached a tentative agreement to settle long-standing litigation regarding dealer financing practices," the financial services company said in a brief statement. GMAC added that the settlement has not been finalized and must be approved by a court.
The class-action lawsuit alleged that black consumers were unfairly charged higher finance rates than whites. It was scheduled to go to trial in a federal court in Nashville, Tennessee, next month.
GMAC was not immediately available for further comment, but in the past has denied any racial bias in its lending practices.
"The settlement will be focused on the company changing its business practices as opposed to paying compensation out," Darnley Stewart, a partner with the law firm of Bernstein Litowitz Berger & Grossmann, which represented plaintiffs in the case, told Reuters.
The settlement, which is expected to be finalized next week, will likely include a limit to the mark up in interest rates that dealers can charge consumers on car loans, and will probably require that dealers provide consumers more information on the finances, Stewart said.
"You can be assured, however, that the settlement will preserve fair competition, appropriate dealer flexibility, and consumer choice and is in everyone's best interest, including GM dealers," GMAC said in the statement.
Japan's Nissan Motor Co. Ltd. agreed to similar terms 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.
When the GMAC lawsuit was filed in 1998, some black consumers were charged finance rates as high as 33 percent on car loans, Stewart said. The lawsuit charged that black car buyers collectively paid millions of dollars more for loans, even though they had the same credit-worthiness as white consumers.
Since then, GMAC has gradually reduced the amount that dealers can mark up a loan above its recommended financing rate to 3 percent.
Plaintiffs said that studies had found that blacks typically paid about 50 percent more in dealer markup. Although car dealers arranged the markup, they paid that money to GMAC, which would then pay part of it back to the dealers for compensation. Since the lawsuit was filed, GMAC has changed that practice, but lawyers argued that it still encouraged an unfair markup for blacks and other minorities.