Illegal Lending Practices Leads to $60 Million Fine for Toyota Motor Credit

Toyota Motor Credit scammed consumers by lying about products included in auto loans and making refunds nearly impossible.

We love our Toyota vehicles for their reputation of quality and dependability. However, it seems that the automotive financing arm of Toyota Motor Corporation has a far different reputation. The Consumer Financial Protection Bureau (CFPB) this week handed down a $60 million fine to Toyota Motor Credit Corporation for dishonest and illegal lending practices. Expensive and unwanted product bundles would be added to customer auto loans. And when customers realized this and tried to cancel, Toyota Motor Credit made it almost impossible.

But that is not even the worst of it. The lending company would also send false information to credit reporting agencies to tarnish the credit history of customers. A $60 million fine sounds like a lot of money but when you realize the extent of the transgressions carried out by Toyota Motor Credit, the fine may not be enough.

Toyota Financing

If you walk into a Toyota dealership for a car, truck or SUV and need financing then Toyota Motor Corporation enters the picture. And with nearly 5 million customer accounts and over $135 billion in assets they enter the picture a lot. The problems arise when the dealers offer optional products and services such as GAP insurance, Credit Life and Accidental Health (CLAH) coverage, and vehicle service agreements. These bundled products are added into the auto loan. And they are expensive and tack on an average of between $700 to $2,500 per loan. Thousands of customers complained that dealers lied about these products being mandatory or they were added to the loan paperwork without buyer consent. OK, so no big deal, just call up Toyota Motor Credit and cancel them, right?

Illegal and Deceitful

Toyota Motor Credit set up a telephone hotline designed specifically to frustrate customers who called to cancel these unwanted products. The phone representatives continued to push the products until the customer asked three times to cancel. At that point, they were told they could only be cancelled via a written request. Additionally, Toyota Motor Credit failed to refund prepaid GAP and CLAH premiums to consumers who paid off the loan or ended the lease before the end of the contract. And perhaps most egregious of all is the fact that the lender would purposefully provide false information to credit bureaus in order to tarnish a customer’s credit rating. For example, they would report delinquent account payments even after the customer handed in a leased vehicle.

Making it Right

Toyota Credit will pay $42 million to customers who did not receive refunds on prepaid GAP and CLAH premiums or were unable to cancel their GAP or CLAH coverage. An additional $6 million will be paid to customers who had their credit rating harmed due to false information. A $12 million civil penalty will be paid and placed in the CFPB’s victim relief fund. Also, all 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.”

We expect a lot from our Toyota vehicles. We should also expect to be treated fairly by the Toyota lending company.

Images: Toyota

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