Toyota will Pay $21.9 Million as Part of Discriminatory Lending Complaint
Toyota has agreed to pay $21.9 million in restitution to non-white car buyers who were charged higher interest rates than white customers, regardless of their credit histories.
The payment is part of a settlement agreement between Toyota Motor Credit, the Consumer Financial Protection Bureau (CFPB) and the Department of Justice (DOJ) following an investigation that began in 2013. The company will also reduce the amount that interest rates can be increased, removing an incentive for dealers to discriminate.
Toyota Motor Credit sets interest rates, known as buy rates, for customers based on credit scores and other risk criteria. Those rates are conveyed to the sales people at the dealership. Dealers, however, have the option to charge a higher interest rate, which generates more compensation for the dealer. In this case, dealers were allowed to mark up interest rates up to 2.5 percent.
While Toyota Motor Credit did not actively discriminate against black and Asian and Pacific Islander borrowers, this policy provided an opportunity and incentive for dealers to do so.
Since 2011 thousands of black borrowers were charged, on average, more than $200 more for their auto loans than white borrowers. Asian and Pacific Islander borrowers were charged, on average more than $100 more.
As part of the settlement, Toyota Motor Credit will reduce the amount by which loans can be marked up to 1.25 percent for loans with terms of five years or less, and to 1 percent for loans with longer terms.
The company will pay $19.9 million into a settlement fund that will go to affected black and Asian and Pacific Islander borrowers whose loans were financed between January 2011 an February 2016. An additional $2 million will go into a fund to compensate anyone who is discriminated against while Toyota puts into place its new pricing and compensation structure.
To read the consent order, visit here.