On February 2, following a joint investigation of the Consumer Financial Protection Bureau and the Civil Rights Division of the Department of Justice, Toyota Motor Credit Corporation, the financing arm and subsidiary of the Japanese auto giant, agreed to pay up to $21.9 million in restitution to thousands of minority borrowers who allegedly were charged higher interest rates than white borrowers for auto loans without regard to their creditworthiness.
The administrative action, In the Matter of Toyota Motor Credit Corporation, and a civil lawsuit filed the same day in the United States District Court for the Central District of California, resulted in a Consent Order between the CFPB, DOJ, and Toyota. The CFPB and DOJ charged Toyota with violating the Equal Credit Opportunity Act and its implementing regulation "by permitting dealers to charge higher interest rates to consumer auto loan borrowers on the basis of race and national origin."
The CFPB and DOJ alleged that, in comparison to the average borrower over the course of the loan, affected African-American borrowers paid at least $200 more and were charged approximately 27 basis points higher, and Asian and Pacific Islander borrowers paid $100 more and were charged approximately 18 basis points higher.
Notably, a CFPB statement released concurrently with the Consent Order said that "the investigation did not find that Toyota Motor Credit intentionally discriminated against its customers, but rather that its discretionary pricing and compensation policies resulted in discriminatory outcomes." No civil money penalties were assessed, and in a press release, Toyota denied any wrongdoing.
As part of the settlement, Toyota will pay $19.9 million to compensate affected borrowers whose auto loans Toyota financed between January 2011 and the entry of the Consent Order on February 2, 2016. Toyota is also responsible for up to $2 million to compensate any similarly affected borrowers in the interim period until Toyota "implements its new pricing and compensation structure." This structure includes, alongside other restrictions, a substantial reduction in its dealers' discretion to mark up interest rates. The DOJ's statement noted that these new policies must be in place by August 2016.
Troutman Sanders LLP has extensive experience representing lenders in the auto finance industry, and will continue to monitor CFPB and other regulatory activity in this area.
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