Toyota Motor Credit Ordered to Pay $60 Million for Illegal Lending and Credit Reporting Practices
Toyota Motor Credit was charged with withholding refunds, tarnishing credit reports and other transgressions.
The Consumer Financial Protection Bureau (CFPB) has slapped Toyota Motor Credit Corporation with a $60 million penalty due to some shady financial business practices. The CFPB found that Toyota Motor Credit was operating an illegal scheme that would add expensive product bundles into an auto loan and then make it extremely difficult for the customer to cancel those bundled products. If a customer did manage to cancel, the refunds would be withheld or issued in the wrong amount. The CFPB goes on to say that Toyota Motor Credit would knowingly tarnish customers’ credit reports by supplying the credit agencies with false information.
The CFPB is ordering Toyota Motor Credit to stop the illegal practices, pay back $48 million to harmed customers and pay a $12 million fine that will go into the CFPB’s victims’ relief fund. “Toyota’s lending arm illegally withheld refunds, made borrowers run through obstacle courses to cancel unwanted services, and tarnished their credit reports,” said CFPB Director Rohit Chopra. “Given the growing burdens of auto loan payments on Americans, we will continue to pursue large auto lenders that cheat their customers.”
Toyota Motor Credit Corporation
The automotive financing arm of Toyota Motor Corporation is based in Plano, Texas. As of October 2022, they had nearly five million customer accounts, and more than $135 billion in assets. It is one of the largest indirect auto lenders in the U.S. If you walk into a Toyota dealership to buy a car Toyota Motor Credit provides the financing. They also offer optional products and services that are sold with vehicles. Dealerships would bundle these products and services into the loan contracts. Examples include GAP insurance, Credit Life and Accidental Health (CLAH) coverage, and vehicle service agreements. These products are not cheap. They add an average of between $700 and $2,500 per loan.
The Complaints
Thousands of customer complaints poured into Toyota Motor Credit about dealers lying about whether these bundled products were mandatory and dealers hiding the bundles in the loan paperwork. But that was just the start of the bad behavior. The company set up a phone hotline for customers to call to cancel these products. But when they would call the representatives answering the hotline would keep promoting the products until the customer asked three times to cancel. When they asked the third time they were told they could only cancel via a written request. If a customer did finally manage to cancel the refund was not sent in the form of a check, it was simply applied toward outstanding principal. Prepaid GAP and CLAH premiums were not refunded when customers paid off the loan or ended the lease early.
To make matters even worse the financing company would provide false information to credit reporting agencies. “Toyota Motor Credit falsely reported customer accounts as delinquent for failure to make monthly account payments even though customers had already returned leased vehicles, and the company did not promptly correct the negative information it had sent to consumer reporting companies even though it knew it was wrong.”
Resolution
In addition to the monetary fines levied all current illegal practices must stop, “Toyota Motor Credit is prohibited from tying employee compensation or performance measurements to consumers’ retention of bundled products, such as GAP coverage or extended warranties. Toyota Motor Credit must also make it easy for consumers to cancel unwanted coverage, monitor auto dealers for the imposition of these products without consumer consent, and inform consumers who have these products of their ability to remove the products online or in writing.”
Buying a car today is expensive enough without having to worry about the credit company taking advantage of you. These shady business practices are shocking, and Toyota needs to do much better.
Images: Lexus
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