The largest U.S. labor federation is calling on Santander Consumer USA to end its practice of allowing car dealers to add interest to a vehicle loan unrelated to the borrower's creditworthiness.

A group of organizations including the AFL-CIO and the Committee for Better Banks said it plans to submit a letter to Chairman William Rainer and Chief Executive Officer Scott Powell at Santander Consumer's annual shareholder meeting Tuesday. They say the company should end dealer markups to prevent racial discrimination in lending.

A sign hangs outside a Banco Santander bank branch.
A sign hangs outside a Banco Santander bank branch. Bloomberg News

"In addition to harming consumers, the racially disparate impact of indirect vehicle lending creates risks to the company's reputation and exposes the company to potential legal liability," the groups said in a draft letter provided to Bloomberg News.

Santander Consumer is a Dallas-based auto lender controlled by Banco Santander SA, the Spanish bank. The U.S. company's board has said it is committed to complying with the Equal Credit Opportunity Act. Santander Consumer declined to immediately comment on the AFL-CIO's letter.

The letter urges Santander Consumer to take steps including disclosing vehicle loan data by race and creating a stakeholder advisory group. The recommendations go beyond an AFL-CIO shareholder proposal that the company prepare a report on racial discrimination risks in auto lending and prevention steps it has taken. This is the AFL-CIO's latest move in an effort to drive financial companies to root out practices the labor federation views as hurting working families.

Santander Consumer's board recommended that shareholders vote against the proposal, saying in its proxy that such a report is "unnecessary and duplicative" because the company already makes significant disclosures.

Bloomberg News