Consumer Watchdog Slaps Toyota Financing Arm with $60 Million Fine Over Car Loan Scam

Politics / Tuesday, 21 November 2023 07:24

"Federal Regulator Slaps Toyota Financing Arm with $60 Million Fine Over Car Loan Scheme

The U.S. financing arm for Toyota, Toyota Motor Credit Corp. (TMCC), is facing a hefty $60 million fine from a federal consumer regulator for engaging in deceptive practices that prevented car buyers from canceling add-ons to their loans. The Consumer Financial Protection Bureau (CFPB) accused TMCC of violating the Consumer Financial Protection Act by unlawfully withholding refunds, imposing hurdles for canceling unwanted services, and causing harm to borrowers' credit reports.

TMCC's transgressions involved preventing customers from canceling loan add-ons, which typically cost between $700 and $2,500 per loan. The company failed to ensure refunds for voided services, thereby violating consumer protection laws. As one of the largest indirect auto lenders in the country, TMCC is now ordered to pay $48 million in consumer redress and a $12 million civil money penalty to the CFPB's victims relief fund.

The consent order also mandates that TMCC refrain from offering incentives to employees for selling add-on products. The company, while admitting no wrongdoing, agreed to the terms of the consent order to fulfill its commitment to delivering improved service to customers, according to Vincent Bray, senior manager of corporate communications for Toyota Financial Services.

The CFPB revealed that between 2016 and 2021, over 118,000 consumer calls to cancel add-on services were directed to a 'retention hotline,' where consumers faced dissuasion efforts and were informed that only written requests would be honored. Add-ons in question include Guarantee Asset Protection (GAP), Credit Life and Accidental Health (CLAH), and vehicle service agreements.

TMCC's failure to refund prepaid GAP and CLAH premiums to customers who paid off loans or terminated leases prematurely, along with miscalculations in refunds for canceled vehicle service agreements, further fueled the regulator's charges. As the CFPB vows to continue pursuing large auto lenders engaging in deceptive practices, TMCC's case highlights the need for increased scrutiny and accountability in the auto lending industry."

"Further Complications: Toyota Financing Arm Slammed for Fair Credit Reporting Act Violations

In addition to the $60 million fine, Toyota Motor Credit Corp. (TMCC) faces additional scrutiny for violating the Fair Credit Reporting Act, which safeguards information on consumer reports. The Consumer Financial Protection Bureau (CFPB) revealed that TMCC failed to promptly correct inaccurate information it provided to credit reporting agencies regarding delinquent returns of leased vehicles.

This revelation adds another layer of concern to the case, indicating a broader pattern of non-compliance with crucial consumer protection laws. The Fair Credit Reporting Act is designed to ensure the accuracy and fairness of information on consumer credit reports, and TMCC's failure to promptly address inaccuracies has triggered legal repercussions.

Vincent Bray, senior manager of corporate communications for Toyota Financial Services, acknowledged that TMCC has already taken steps to address the concerns raised by the Bureau. He stated, 'In most instances, TMCC has already addressed the areas of concern cited by the Bureau. We will continue to enhance our practices to deliver the best possible customer experiences.'

As TMCC navigates the fallout from these regulatory actions, the spotlight on fair lending practices and accurate credit reporting underscores the need for financial institutions to uphold stringent standards in their interactions with consumers. The case serves as a stark reminder that adherence to consumer protection laws is non-negotiable, and companies must continually improve their practices to ensure the highest standards of customer satisfaction and regulatory compliance."

"In conclusion, Toyota Motor Credit Corp.'s (TMCC) $60 million fine and violations of the Fair Credit Reporting Act underscore the imperative for financial institutions to uphold rigorous standards in consumer interactions. The dual infractions, involving deceptive practices and inaccuracies in credit reporting, highlight the importance of transparency, fairness, and prompt corrective actions in the lending industry.

TMCC's acknowledgment of addressing concerns raised by the Consumer Financial Protection Bureau (CFPB) signals a commitment to improving practices. However, as the automotive financing giant navigates the fallout, the broader implications emphasize the need for continuous enhancement of customer experiences and compliance with consumer protection laws.

This case serves as a cautionary tale for financial entities, reinforcing the non-negotiable nature of regulatory adherence. The ever-evolving landscape of consumer finance demands unwavering commitment to fair lending practices and accurate credit reporting, ensuring that customers are treated ethically and that financial institutions maintain the highest standards of compliance and accountability."