There is no legal requirement that car dealers or lenders must tell consumers about the role dealers play in setting the interest rate on dealer-arranged car loans. At the dealership, the ultimate decision about a loan's cost is left to the discretion of an employee who profits immediately by charging the highest possible rate, even though the dealer has no money at risk.

Now this markup practice is coming under legal attack in at least five states, a joint investigation by The New York Times and ABC News' "20/20" has found.

In a story in the New York Times, Diana B. Henriques examined the dealer markup phenomenon and how it is increasingly coming under attack as a fraudulent and deceptive business practice.

Dealers and lenders describe dealer markup as a legitimate business practice that in no way misleads or defrauds consumers.

Industry experts say that the money dealers make on markups — part of what dealers call "finance and insurance" income — can make the difference between profit and loss for many dealerships.

The National Automobile Dealers Association (NADA) and the American Financial Services Association, which represents lenders, say that markups compensate dealers for the expense involved in offering consumers the convenience of dealer-arranged financing.

And they maintain that the competition among lenders for each dealer's loan business keeps rates low even after dealers have added their "retail markup."

Lenders and dealers say that consumers who know their creditworthiness and the rates available from other sources can negotiate an excellent dealer-arranged car loan.

But consumer advocates dispute that, noting it is almost impossible, short of litigation, for consumers to find out the rates at which lenders approved them for dealer-arranged credit.

Lawyers for the lenders and dealers point out that several earlier lawsuits challenging dealer markups have been largely unsuccessful.

The exceptions have been a few cases where the consumers could argue that the dealers promised to seek "the best rate" on their behalf. Dealers who make such promises may unwittingly assume a fiduciary duty to look out for the consumer's best interests, lawyers say.

The Federal Reserve and Congress have declined to require dealers or lenders to disclose loan markups. The Truth in Lending Act requires only that consumers be informed about the actual interest rate and total finance charges they are paying. The loan documents that dealers use do that, although the dealers' own share is not disclosed.

For Henriques' story, visit http://www.nytimes.com/2000/10/27/business/27LOAN.html on the New York Times' Website.