Car Dealers & The 'Mark-Up' Scam

Every time Michelle Thompson gets behind the wheel of her used Honda, she gets angry, reminded of the car dealer she claims steered her into an almost 18 percent loan.

"I think they take advantage of minorities, lower class is what they probably deem us," said Thompson.

Thompson has been working to pay off her car at $440 a month, she told CBS News Correspondent Sandra Hughes.

"It's like half my paycheck and it's a struggle now that I'm a homeowner. I have a three-year-old son. It's definitely a huge burden," Thompson said.

Thompson fell victim to an industry-wide practice called the "dealer mark-up" when she bought her car at a northern California dealership. The mark up happens when a buyer purchases a car and finances it at the dealership using the dealer's loan company instead of a bank.

While the dealership's loan company might quote a 10-percent loan based on credit history ... after asking the buyer what they can afford in monthly payments the salesperson then secretly "marks up" the loan accordingly. The profit is split between the dealer and the loan company.

Bill Lann Lee, who was President Clinton's chief civil right's enforcer, says the dealer mark up may not be technically illegal, "but what is illegal is charging more to some people because of race or ethnicity than to others."

Lee has filed class action lawsuits against Honda financing, Toyota financing and a car loan company called W.F.S., alleging each "discriminatorily charges its minority customers higher mark ups" than white customers with similar credit.

Honda wouldn't comment on the claims but a spokeswoman for WFS says the company remains committed to fair lending and equal credit. Toyota says it does not tolerate discrimination and has implemented a three-percent cap on mark ups.

Just this week Nissan Financing agreed to settle similar claims, paying back some black and Hispanic consumers and offering pre-approved loans with no mark up to 625,000 others.

Michelle Thompson hopes she will also win back some of her hard earned money.

"I feel that it was wrong and I was just used and no one should have to go through that!"

By the time she pays off her loan, her now seven-year-old car will have cost her $28,000.