Human Resource Selection 9th Edition by Marianne Jennings

Exercise 3

American Future Systems, Inc. (AFS), sells china, cookware, crystal, and tableware, and extends credit to its customers for such purchases. Sales on a credit basis amount to over 95 percent of AFS sales. First National Acceptance Corporation (FNAC)is AFS's credit company and is wholly owned by AFS. AFS affords young people and minorities a chance to obtain credit in spite of their lack of prior credit histories.
Its general standards for credit are (1)a telephone in the residence, (2)positive credit experience of at least $100, and (3)employment with regular income. AFS has three specific marketing programs: a summer program; a winter program for single white females; and a winter program for minorities, married persons, and males.
Under the summer program, target customers are single white females living at home with a parent who could cosign for the credit. AFS does not always require the parent's signature and might ship goods to this group without checking credit histories. This market is reached by salespeople who are sent only to white neighborhoods and instructed to avoid neighborhoods where there might be a racial mix.
If salespeople encounter a minority customer in their presentations, AFS will sell the goods and extend credit to them, but a credit check is done on both the applicant and cosigner before goods are shipped. About 20 percent of the applications of minority applicants are denied.
The winter program has two parts. The preferred part of the winter program consists of sales to single white women who are sophomores, juniors, or seniors in four-year colleges or nursing schools. The other part of the program focuses on minorities, males, and married persons attending college or vocational schools. Shipment to preferred customers is immediate, with automatic credit approval. Shipment to the nonpreferred winter group is deferred until the applicant makes three timely monthly payments.
AFS presented evidence that minority customers are, as a group, less creditworthy than their white counterparts. However, the statistics presented did not account for AFS's failure to solicit in minority neighborhoods. The U.S. government brought suit for violation of the ECOA. Is the AFS program a violation of ECOA? [ United States v American Future Systems, Inc., 743, F2d 169 (3d Cir. 1984)]