General Motors Acceptance Corp., the credit arm of General Motors Corp., agreed yesterday to repay $2 million to customers whose cars it repossessed and then, through alleged sham operations, made profits on what it should have returned to the defaulting customers.
The Federal Trade Commission, which investigated the nation's largest automaker and its subsidiary after complaints of credit problems by low-income persons, called the consent agreement signed by GM, GMAC and the FTC "one of the largest consumer-credit restitution agreements ever obtain by the commission."
The payback affects only certain repossessions since 1974.
The agreement "settles FTC charges that in many instances GMAC conducted 'sham' sales that deprived customers of surpluses to which they were entitled from the sale of respossessed vehicles," the FTC said. "The agreement would ensure that future surpluses are paid promptly and in the proper amount."
A GMAC spokeswoman said yesterday the company hasn't yet figured out how many of its customers the agreement will affect. But the FTC estimated that customers would be eligible for payments ranging between $25 and $700, depending in part on how many of those eligible customers can be found.
A GM spokesman said that under terms of the agreement, the automaker and its subsidiary haven't admitted any violation of the law but negotiated the settlement to avoid any further court court costs emanating from the 1976 FTC suit against GM.
According to the FTC, federal and state law require that firm that repossesses a vehicle from a customer may keep only enough proceeds from the resale of the vehicle to cover the outstanding debt and certain expenses of the transaction. Any surplus must be paid to the customer who defaulted.
GMAC, however, in some instances, reapossessed the cars from customers and then sold them to itself at a low prise so that there would be no surplus, the FTC alleged.
The FTC complaint said "contrary to GMAC claims that these (sales) were legal sales open to the public," the sales were a sham and that "outside bidders rarely attended and GMAC routinely sold the vehicles to itself."
GMACwould then resell the cars to a third party at a profit and keep the surplus, the FTC claimed.
Randall H. Brook, an attorney at the FTC Seattle office that investigated the case, said commission would have proved in court that GMAC in some instances would sell a car to itself at a deficit and then require the defaulting customer to make up the difference. GMAC would then resell the car at a profit, he said.
GM and GMAC denied the FTC allegations. A GMAC spokeswoman said that the sales of the repossessed cars were advertised in newspapers and notices were sent to the cars' previous owners announcing the impending sales. The cars were advertised publicly and in good faith," the spokeswoman said.
GMAC repossesses more than 100,000 cars and trucks each year, the FTC said. About half of those are returned to the original dealers for resale by GMAC, between 10 and 15 percent of those resales result in a surplus.
Brook said his office estimated that GMAC receives surpluses of $1 million a year that should be returned to customers, but the $2 million settlement figure was agreed upon since the FTC staff figured only about one-fourth of those eligible for repayment would be found. The $2 million will be split among the customers on the basis of a formula.
Last year, Brook said that the Ford Motor Co. agreed to a settlement in a case in which the FTC claimed the company kept surpluses but no alleged sham sales we involved.
The consent agreement are open for public comment until May 5 when the commission is expected to make them final.