The Consumer Financial Protection Bureau (CFPB) has delivered a significant ruling against Toyota Motor Credit Corporation for operating an illegal scheme that prevented borrowers from canceling product bundles, which led to inflated monthly car loan payments. The CFPB has ordered the company to pay $60 million in consumer redress and penalties for its unlawful practices.
Toyota Motor Credit, a financing provider for consumers purchasing vehicles through Toyota dealerships, offers optional products and services along with the vehicles. These bundled products, often sold as a package by dealerships, were added onto car loan contracts and included Guaranteed Asset Protection (GAP), Credit Life and Accidental Health (CLAH) coverage, and vehicle service agreements.
The cost of these bundled products, financed by Toyota Motor Credit, ranged between $700 and $2,500 per loan. Their inclusion significantly increased the loan amount, monthly payment, and finance charge, leading to increased profits for Toyota Motor Credit from the sale of these products.
However, thousands of consumers lodged complaints against Toyota Motor Credit, alleging that dealers had misrepresented these products as mandatory, included them on contracts without borrowers’ knowledge, or rushed paperwork to obscure the terms. In response, Toyota Motor Credit devised a scheme to retain the revenue from these products by making cancellations extremely cumbersome and then failing to provide proper refunds for consumers who succeeded in canceling. The company also falsely reported that borrowers had missed payments and failed to correct consumer reporting errors it knew were incorrect.
These 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. The CFPB has detailed the ways in which the company harmed consumers, including directing consumers to a dead-end cancellation hotline, delaying refunds by applying them to principal payments, withholding refunds or providing inaccurate refund amounts, and furnishing false data to consumer reporting companies.
In light of these transgressions, the CFPB has ordered Toyota Motor Credit to cease its unlawful practices, pay $48 million to consumers who were harmed, and contribute a $12 million penalty into the CFPB’s victims relief fund.
Key aspects of the order include:
- Toyota Motor Credit must pay nearly $48 million to consumers who were not given accurate refunds when they canceled their coverage or were affected by false information sent to a consumer reporting company.
- The company is required to cease all illegal practices, including tying employee compensation to consumers’ retention of bundled products, making it difficult for consumers to cancel unwanted coverage, and failing to monitor auto dealers for the imposition of these products without consumer consent.
- Toyota Motor Credit will also pay a $12 million civil penalty to the CFPB’s victims relief fund.
Read the order here.