Toyota Motor Credit reaches pact with CFPB over discriminatory loan pricing

Toyota Motor Credit Corp. has agreed to pay up to $21.9 million and limit its retail margins on auto loans to settle U.S. Department of Justice and Consumer Financial Protection Bureau allegations that it overcharged minority borrowers on their auto loans.

Toyota Motor Credit agreed to cap the retail margin dealers make on loans at 1.25 percentage points for contracts of 60 months or fewer and at 1 percentage point for contracts longer than 60 months. The company was not ordered to pay civil penalties.

“The department and CFPB anticipate that Toyota’s new caps on discretionary markups will substantially reduce or eliminate disparities in markups based on race or national origin,” a Justice Department statement said.

A statement from the CFPB, though, said that potential discrimination by Toyota was unintentional. The CFPB said its investigation did not find that Toyota Motor Credit intentionally discriminated but that the captive’s pricing and compensation policies resulted in “discriminatory outcomes.”

The Justice Department and CFPB complaint says that African-American borrowers who were overcharged paid at least $200 more than the average borrower during the course of their loans. Asian and Pacific Islander borrowers who were overcharged paid an additional $100 more over the course of their loans.

Settlement conditions

As part of its settlement, Toyota Motor Credit will pay $19.9 million into a fund to compensate affected African-American and Asian and Pacific Islander borrowers whose auto loans were financed by Toyota Motor Credit between January 2011 and Feb. 2, 2016. Toyota Motor Credit will also pay up to $2 million into the fund to compensate any affected African-American and Asian and Pacific Islander borrowers in the period between Feb. 2 and when Toyota Motor Credit implements its new pricing and compensation structure, a CFPB statement said.

Toyota Motor Credit is preparing to implement new policies that will be in place by August, the Justice Department statement said. A settlement administrator will locate victims to distribute payments to those eligible, it said.

Toyota Motor Credit also agreed to improve its monitoring and compliance systems, the statement said.

“The settlement allows Toyota to experiment with different approaches toward lessening discrimination” and requires the finance arm to keep the CFPB up to date on the results of its efforts, the Justice Department statement said.

No wrongdoing

Toyota Motor Credit said in a statement that it denies any wrongdoing and “does not tolerate discrimination of any kind, even perceived or unintentional.”

It said further that as an indirect lender, it “has no visibility into the race or ethnicity of its customers or credit applicants, and these factors have no bearing on the company’s credit or pricing decisions”

Toyota Motor Credit said that while it “respectfully disagrees with the agencies’ methodologies to determine whether industry lending practices have been discriminatory, the company shares the agencies’ commitment to ensuring that consumers can count on competitive and fair auto financing options. The actions TMCC will take under this agreement are intended to further that commitment.”

Toyota Motor Credit is the second captive finance arm to settle with the CFPB and Justice Department for potentially discriminatory lending practices. American Honda Finance Corp. settled in July, agreeing to pay $24 million to potentially affected borrowers and to implementing the same loan caps as Toyota Motor Credit.

Jim Henry contributed to this report.

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