Toyota Motor Credit Settles With U.S. Over Discrimination Allegations

Toyota Motor Credit is the latest auto lender to settle allegations from federal authorities that its policies led to discrimination among minorities who borrowed through dealers when buying cars. The firm will pay up to $21.9 million in restitution to consumers, according to a settlement order made public Tuesday by the Consumer Financial Protection Bureau and the Department of Justice.

The CFPB says that Toyota Motor Credit’s system of allowing dealers to mark up interest rates led to African-Americans, Asians and Pacific Islanders paying higher interest rates than white borrowers. Thousands of minority borrowers paid $200 more than whites because of the policy, the bureau said.

Toyota did not admit any wrongdoing and described the agreement as voluntary. In addition to the commitment to “refund” overpayments, Toyota Motor Credit also agreed to limit the amount of markup it will allow dealers to earn. Previously, dealers could add up to 2.5% to an auto loan offered to consumers; that will now be capped at 1.25%.

“No consumer should be forced to pay more money for a loan because of their race or national origin,” said U.S. Attorney Eileen M. Decker of the Central District of California. “This settlement resolves our claims by providing compensation for affected consumers and seeking to ensure that future loans funded by Toyota reflect equal terms.”

The CFPB announcement made clear that its investigation did not find Toyota Motor Credit intentionally discriminated against its customers, but rather that its “discretionary pricing and compensation policies resulted in discriminatory outcomes.” The firm faces no penalties because of “proactive” steps it is taking to address fair lending risk, the CFPB said.

“(Toyota Motor Credit) does not tolerate discrimination of any kind, even perceived or unintentional, from its employees or business partners,” the firm said in a statement. “This principle extends to fair lending practices. While (Toyota Motor Credit) 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 (Toyota Motor Credit) will take under this agreement are intended to further that commitment.”

The CFPB has aggressively pursued fair lending cases against auto lenders. Previously, it has settled similar cases with Ally Bank, American Honda Finance, and Fifth Third Bank.

The Ally case, settled in December 2013, has been in the news recently because some object to the method the CFPB required for distributing remuneration checks. Auto lenders generally do not collect ethnic data on borrowers, so the agency used statistical calculations to assess the probability that a consumer might be a minority. On Jan. 20, the Republican-led House Financial Services Committee released a report ringing the alarm bell that some non-minorities will receive payouts from the settlement fund.