Yahoo Autos Toyota Motor Credit Fined $60 Million for Illegal Lending Practices, Officials Say
The Consumer Financial Protection Bureau (CFPB) slapped Toyota Motor Credit with a $60 million fine this week for illegal lending and credit reporting practices. The lender set up a dead-end hotline, withheld refunds, and sent false information to credit reporting agencies, the federal agency said.
Toyota Motor Credit Corporation is the auto-financing arm of the Toyota Motor Corporation. As of October 2022, it had nearly 5 million customer accounts and over $135 billion in assets. It is one of the largest indirect auto lenders in the U.S.
Through TMCC, dealerships would sell optional products and services such as GAP insurance, Credit Life and Accidental Health (CLAH) coverage, and vehicle service agreements. These optional products and services were sold with vehicles and often rolled into the auto loan payment. These items on average would add between $700 and $2,500 to the loan.
Thousands of Toyota customers complained that dealers lied to them about these products being mandatory or were being slipped into the loan paperwork without their knowledge, the federal agency said. Official said Toyota Motor Credit then made it nearly impossible for the customer to cancel these additional items and receive a refund. The financing company went as far as to set up a dead-end hotline. When customers called to cancel these packages, the phone representative would instead keep pushing the services. When the customer finally asked for a third time to cancel, the rep would tell them they could only do so via a written request.
Customers who paid off their loan or ended the lease before the end of the contract were due a refund of prepaid GAP and CLAH premiums, however, Toyota Motor Credit failed to issue them, officials said. The CFPB claims the company would also submit false information to credit reporting agencies. This included reporting customer accounts as delinquent for failure to make monthly account payments even though customers had already returned leased vehicles.
"Toyota's lending arm illegally withheld refunds, made borrowers run through obstacle courses to cancel unwanted services, and tarnished their credit reports," CFPB director Rohit Chopra said in a statement. "Given the growing burdens of auto loan payments on Americans, we will continue to pursue large auto lenders that cheat their customers."
In a statement given to the Detroit Free Press, Toyota said it's "committed to doing what’s right for our customers and strives to consistently follow all federal and state laws in our sales, customer service and administrative practices... We are dedicated to ensuring we demonstrate our core value of 'Respect for People' in every aspect of our relationship with customers."
The CFPB ordered Toyota Motor Credit to pay $48 million to harmed customers and an additional $12 million civil penalty that would go into a CFPB victims relief fund. In addition to the monetary fines, Toyota Motor Credit is ordered to "stop its illegal practices." According to the CFPB, this includes making it easy to cancel unwanted products and no longer tying employee compensation or performance measurements to consumers’ retention of these bundled products.
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