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CFPB Orders Toyota Motor Credit to Pay $60 Million for Illegal Loans and Credit Reporting Misconduct
WASHINGTON DC – The Consumer Financial Protection Bureau (CFPB) today ordered Toyota Motor Credit Corporation to pay $60 million in consumer redress and penalties for operating an illegal scheme to prevent borrowers from canceling product packages that increased their monthly loan payments to automobiles. The company withheld refunds or refunded incorrect amounts for bundled products and knowingly tainted consumers’ credit reports with false information. The CFPB is ordering Toyota Motor Credit to stop its illegal practices, pay $48 million to harmed consumers, and pay a $12 million fine to the CFPB’s Victim Relief Fund.
“Toyota’s lending arm illegally withheld refunds, made borrowers jump through hoops to cancel unwanted services, and tainted their credit reports,” said CFPB Director Rohit Chopra. “Given the increasing burden of auto loan payments on Americans, we will continue to pursue large auto lenders who cheat their customers.”
Toyota Motor Credit Corporation is the automotive financing arm of the United States-based Toyota Motor Corporation and is headquartered in Plano, Texas. It is one of the largest indirect auto lenders in the United States, with nearly five million customer accounts and more than $135 billion in assets as of October 2021.
Toyota Motor Credit offers financing to consumers who purchase cars from Toyota dealerships and also offers optional products and services sold with the vehicles. Dealerships typically sell products and services as a package to consumers and then add them to car loan contracts. Included products include Guaranteed Asset Protection (GAP), which covers the difference (or gap) between the amount a consumer owes on an auto loan and what their insurance pays if the vehicle is stolen, damaged or destroyed. Toyota Motor Credit also offers Accidental Life and Health (CLAH) coverage, which covers the remaining balance if the borrower dies or becomes disabled, and vehicle service contracts, which reimburse borrowers for parts and services beyond what is covered by the manufacturer’s warranty.
The cost of the bundled products, financed by Toyota Motor Credit, averaged between $700 and $2,500 per loan. Including these products in the sale or lease of a vehicle can significantly increase the loan amount, monthly payment and finance charges. Toyota Motor Credit profits from the sale of these products, charging more finance charges on the increase in the loan amount.
Thousands of consumers have complained to Toyota Motor Credit that dealers lied about whether these products were mandatory, included them in contracts without borrowers’ knowledge, or rushed to fill out paperwork to hide hidden terms. However, Toyota Motor Credit devised a scheme to withhold revenue from these products, making cancellation extremely complicated, and then failed to provide adequate refunds to consumers who were able to cancel. The company also falsely told consumer reporting companies that borrowers had missed payments and failed to correct consumer reporting errors that it knew were erroneous.
Toyota Motor Credit’s actions violated the Consumer Financial Protection Act’s prohibition against unfair and abusive acts and practices, as well as the Fair Credit Reporting Act and its implementing regulation. Today’s order describes in detail how the company harmed consumers, including by:
- Directing consumers to a dead-end cancellation hotline: Toyota Motor Credit has prevented many consumers from canceling product packages by making the process excessively difficult. Consumers who wished to cancel by phone were directed to a “hold hotline” staffed by employees whose primary purpose was to dissuade such cancellations. Between 2016 and 2021 alone, Toyota Motor Credit funneled more than 118,000 consumer calls through this hotline. The hotline representatives were instructed to continue promoting the products until the consumer verbally requested cancellation three times, at which point the representatives would inform the consumer that they could only cancel by submitting a written request.
- Delay repayments by applying them to principal payments: Instead of issuing a refund check or reducing the monthly payment amount upon consumer cancellation of bundled products, Toyota Motor Credit applied the refund amount as an additional payment to the principal, reducing the number of monthly payments. Applying the refund in this way effectively delayed the consumer’s money back until the end of the sales or lease agreement term. The company took advantage of this fact to discourage cancellations, informing consumers on the retention hotline that their monthly payments would not decrease and that they would not receive a direct refund.
- Withholding refunds or providing inaccurate refund amounts: Toyota Motor Credit did not refund prepaid GAP and CLAH premiums to consumers who paid off their loan or terminated their lease before the end of their lease. Toyota Motor Credit also relied on faulty calculations that resulted in incorrect refunds for consumers who canceled their vehicle service contracts.
- Providing False Data to Consumer Reporting Companies: Toyota Motor Credit falsely reported customer accounts as delinquent for failing to make monthly payments even though customers had already returned leased vehicles, and the company did not promptly correct negative information it had sent to consumer reporting companies even though it knew they were wrong. Toyota Motor Credit also failed to maintain reasonable policies and procedures to ensure that payment information submitted to consumer reporting companies was accurate.
Enforcement action
Under the Consumer Financial Protection Act, the CFPB has the authority to take enforcement action against institutions that violate federal consumer financial laws, including prohibiting unfair and abusive acts or practices. The CFPB also has the authority to take enforcement action for violations of the Fair Credit Reporting Act and Regulation V.
The order announced today requires Toyota Motor Credit to:
- Pay almost US$48 million in consumer reparations: Toyota Motor Credit will pay nearly $32 million to consumers who did not receive refunds for unearned GAP and CLAH premiums. The company will also pay more than $9.9 million to consumers who tried to cancel their GAP or CLAH coverage but were unable to do so. Toyota Motor Credit will pay more than $6 million to consumers affected by false information sent to a consumer reporting company, and at least $52,000 to consumers who did not receive accurate refunds when they canceled their vehicle service contract.
- Stop your illegal practices: 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 easier for consumers to cancel unwanted coverages, monitor automobile dealers for the imposition of these products without consumer consent, and inform consumers who own these products of their ability to pick them up online or by written.
- Pay a $12 million fine: Toyota Motor Credit will pay a $12 million civil penalty to the CFPB Victim Relief Fund.
The CFPB website has resources for consumers about car loans It is credit reports.
Read about other action taken by the CFPB against another auto company’s lending arm.
Consumers can lodge complaints about financial products or services by visiting the CFPB website or by calling (855) 411-CFPB (2372).
Employees of companies that believe they have violated federal consumer financial laws are encouraged to submit information about what they know to whistleblower@cfpb.gov.
The Consumer Financial Protection Bureau is a 21st century agency that implements and enforces federal consumer financial laws and ensures that markets for consumer financial products are fair, transparent and competitive. For more information visit www.consumerfinance.gov.