Summary Sheet - Hidden Auto Finance Markup: The Costs and Impact on New Jersey Consumers

Hidden Auto Finance Markup:

The Costs and Impact on New Jersey Consumers

Study Summary Sheet

Introduction

Auto loan markups occur when lenders allow car dealers to subjectively increase the interest rate on auto loans above the "buy rate" determined by the actual creditworthiness of borrowers.

This study determined that during the period March 1993 through September 2000, the average markup of a Black NMAC (Nissan Motors Acceptance Corporation) customer in New Jersey was $799, as compared to $460 for the average markup of a White NMAC customer, a difference of $339.

Among 30,092 New Jersey borrowers impacted by the markup in the study of PRIMUS lending, the average markup percentage was 1.02 percentage points and the average markup fee was $456.
For another NJ PRIMUS consumer, a markup of 8.00 percentage points on 36 month loan of $6,362 yielded a $943 markup; the buy rate for this borrower was 13.00 percent and the APR after the markup was 21.00 percent.

The 219,278 PRIMUS borrowers who were identified as either being African-American or White were charged a total of $118 million in subjective markup. Of that total, $30.9 million, or 26.1% was charged to African-Americans, who make up only 16.3% of this customer base.
3,198 PRIMUS customers in the race-coded sample were charged more than $3,000 in subjective markup. African-Americans make up 31.6% of those who were charged more than $3,000, although they again represent only 16.3% of the borrower pool.
One African-American customer in Florida financed a Toyota Sequoia through PRIMUS and borrowed $36,718 for 60 months. This customer had a tier 2 credit rating and should have qualified for a loan rate of 11.7%. The loan was marked up by 5 percentage points to 16.7%. As a result, monthly payments were nearly $100 more per month than they would have been if the loan had not been marked up. The total subjective markup over the life of this loan was $5,863.80.
The average subjective markup for African-Americans was $930 in 2001; $872 in 2002; $699 in 2003; and $498 in 2004. The average subjective markup for Whites was $542 in 2001; $445 in 2002; $397 in 2003; and $343 in 2004. This decline in mark ups appears to reflect PRIMUS's lowering its cap on allowable markup to three percentage points in 2003, but the numbers also show that racial disparities in the markup remain.

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