Toyota Financial, specifically its U.S.-based lending arm, Toyota Motor Credit, has agreed to pay $60 million to settle charges brought by the Consumer Financial Protection Bureau (CFPB). The allegations involve the illegal prevention of car buyers from canceling unwanted product bundles that led to increased monthly loan payments and negatively impacted buyers’ credit reports.
As part of the settlement, Toyota Motor Credit will pay a $12 million civil fine, and an additional $48 million will be allocated to compensate car buyers who have been harmed since 2016. This settlement highlights the regulator’s concerns regarding “add-on” products, which typically cost between $700 and $2,500 per loan. These products offer protection in scenarios such as vehicle damage, theft, warranty expiration, or in the unfortunate events of a buyer’s death or disability.
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The CFPB reported that numerous borrowers filed complaints against Toyota Motor Credit, alleging that dealers either misled them about the mandatory nature of these add-on products or rushed through paperwork to conceal the true costs. Furthermore, the regulator noted that Toyota Motor Credit made it difficult for borrowers to cancel these bundles. This difficulty was exacerbated by the routing of over 118,000 borrowers to a hotline where agents were instructed to discourage cancellations, often leading to failed refund processes.
In addition to these issues, Toyota Motor Credit faced accusations of providing false information to credit reporting agencies. This included falsely indicating that borrowers had missed payments and a failure to promptly rectify negative information for over 27,500 borrowers.
Under the terms of the consent order, Toyota Motor Credit, without admitting or denying liability, has committed to simplifying the process for canceling unwanted product bundles. The company will also implement closer monitoring of dealers’ conduct and ensure that employee compensation and performance metrics are not tied to the sales of these bundles.
This settlement serves as a reminder of the importance of transparent and fair practices in the financial and lending sectors, as well as the need for companies to prioritize customer protection and regulatory compliance.
Source: Reuters
