TOYOTA Motor Credit Corp. will pay $21.9 million to black and Asian Pacific Islander borrowers in a settlement over allegations of discriminatory lending, the US Department of Justice and Consumer Financial Protection Bureau announced Tuesday, Feb. 2.
In a probe, government investigators found that dealers marked up interest rates on loans for minority buyers from 2011 to 2016. They further found that black borrowers paid up to $200 more throughout the course of their loans, while Asians paid up to $100 more.
The number of borrowers affected is unclear, but the settlement amount implies that the number was more than 100,000.
“No consumer should be forced to pay more money for a loan because of their race or national origin,” US Attorney Eileen Decker of the Central District of California said in a statement announcing the settlement.
Under the settlement, Toyota will also cap the amount dealers can mark up a loan at 1.25 points and 1 point for loans that last longer than five years, compared to the 2.5 percentage points it was formerly able to add.
The Justice Department, in the complaint filed Tuesday in Los Angeles federal court, said Toyota was aware that permitting dealerships to increase loans created a “substantial risk of discrimination.” It further stated that prior to Sept. 10, 2014, Toyota did not require dealers to record reasons for adding percentage points to loans, nor did it monitor its portfolio for potential discrimination.
Like most major auto lenders, Toyota allows car dealers to set the interest rates on loans based on the borrower’s credit. The lawsuit, however, alleges that Toyota gave buyers higher interest rates based on their race or national origin rather than creditworthiness.
Toyota Motor Credit Corp., the nation’s fifth-largest auto lender overall, denies the allegations and claimed it was unaware of the race of credit applicants. But it agreed to the settlement and said in a statement it is committed to fairness.
“TMCC does not tolerate discrimination of any kind, even perceived or unintentional, from its employees or business partners – this principle extends to fair lending practices,” the company stated.
“While TMCC respectfully disagrees with the agencies’ methodologies to determine whether industry lending practices have been discriminatory, the company shares the agencies’ commitment to ensuring that consumers can count on competitive and fair auto financing options. The actions TMCC will take under this agreement are intended to further that commitment,” according to the statement.
Toyota is the most recent auto lender to settle a discrimination case. Last year, Honda Finance Corp. was among large auto lenders who agreed to settlements over discriminatory lending.
