CFPB Orders Toyota Motor Credit to Pay $60 Million for Illegal Lending and Credit Reporting Misconduct
Lender directed customers to dead-end cancellation hotline, withheld refunds, and knowingly tarnished credit reports with false data
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 cancelling product bundles that increased their monthly car loan payments. The company withheld refunds or refunded incorrect amounts on the bundled products and knowingly tarnished consumers’ credit reports with false information. The CFPB is ordering Toyota Motor Credit to stop its unlawful practices, pay $48 million to harmed consumers, and pay a $12 million penalty 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 is the United States-based auto-financing arm of the 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 2022.
Toyota Motor Credit provides financing for consumers buying cars through Toyota dealerships, and also offers optional products and services sold with the vehicles. Dealerships often sell the products and services as a bundled package to consumers and then add them onto car loan contracts. Bundled 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 totaled. Toyota Motor Credit also offers Credit Life and Accidental Health (CLAH) coverage, which covers the remaining balance if a borrower dies or becomes disabled, and vehicle service agreements, which reimburse borrowers for parts and service beyond what is covered by the manufacturer warranty.
The cost of the bundled products, financed by Toyota Motor Credit, averaged between $700 and $2,500 per loan. Including these products in a vehicle sale or lease can significantly increase the loan amount, monthly payment, and finance charge. Toyota Motor Credit profits from the sale of these products by collecting more finance charges on the increased loan amount.
Thousands of consumers complained to Toyota Motor Credit that dealers had lied about whether these products were mandatory, included them on contracts without the borrowers’ knowledge, or rushed through paperwork to hide buried terms. Nevertheless, Toyota Motor Credit devised a scheme to retain the revenue from these products by making it extremely cumbersome to cancel, and then failed to provide proper refunds for consumers who succeeded in cancelling. The company also falsely told consumer reporting companies that borrowers had missed payments, and it failed to correct consumer reporting errors it knew were wrong.
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 prevented many consumers from cancelling product bundles by making the process unreasonably difficult. Consumers who wanted to cancel over the phone were directed to a “retention hotline” operated by employees whose primary objective was to dissuade such cancellations. Between 2016 and 2021 alone, Toyota Motor Credit funneled more than 118,000 consumer calls through this hotline. Representatives on the hotline were instructed to keep promoting the products until a consumer had verbally requested to cancel three times, at which point the representatives would tell the consumer that it was only possible to cancel by submitting a written request.
Delaying refunds by applying them to principal payments: Instead of issuing a refund check or lowering the monthly payment amount upon a consumer’s cancellation of bundled products, Toyota Motor Credit applied the refund amount as an additional payment toward principal, reducing the number of monthly payments. Applying the refund in this way effectively delayed the return of the consumer’s money until the end of the sale or lease agreement term. The company used this fact to discourage cancellations, telling consumers on the retention hotline that their monthly payments would not decrease and that they would not receive direct refunds.
Withholding refunds or providing inaccurate refund amounts: 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. Toyota Motor Credit also relied on faulty calculations which resulted in incorrect refunds for consumers who canceled their vehicle service agreements.
Furnishing false data to consumer reporting companies: 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. Toyota Motor Credit also failed to maintain reasonable policies and procedures to ensure payment information it sent 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 the prohibition of unfair and abusive acts or practices. The CFPB also has authority to take enforcement action for violations of the Fair Credit Reporting Act and Regulation V.
The order announced today requires that Toyota Motor Credit:
Pay nearly $48 million in consumer redress: Toyota Motor Credit will pay nearly $32 million to consumers who did not receive refunds on unearned GAP and CLAH premiums. The company will also pay over $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 over $6 million to consumers affected by false information sent to a consumer reporting company, and at least $52,000 to consumers who were not given accurate refunds when they canceled their vehicle service agreement.
Stop its 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 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.
Pay a $12 million fine: Toyota Motor Credit will pay a $12 million civil penalty to the CFPB’s victims relief fund.