Toyota Unit Enters $21.9 Million Settlement Over Alleged Auto Loan Racial Bias
February 02 2016 - 7:10PM
Dow Jones News
WASHINGTON—Federal regulators have reached a $21.9 million
settlement with Toyota Motor Corp.'s U.S. financing unit over
policies that allegedly overcharged minority borrowers for auto
loans.
It is the fourth settlement that regulators have drawn from auto
lenders over the past two years about suspected racial
discrimination, part of an expanding federal scrutiny of that
issue.
Under the agreement with the Consumer Financial Protection
Bureau and the Justice Department announced Tuesday, Toyota Motor
Credit Corp. will also change its pricing and compensation system
to reduce the discretion of dealers to charge extra interest for
certain loans, and will cut their compensation associated with such
action, the regulators said.
In a statement, the Toyota unit denied any wrongdoing and noted
that the voluntary agreement didn't include an assessment of civil
money penalties. Instead, the settlement will go into a fund
reimbursing borrowers who allegedly faced discrimination.
In a separate high-profile auto lending discrimination case,
Ally Financial Inc. on Jan. 29 mailed checks worth a combined $80
million to 235,000 customers allegedly harmed by its pricing
practices. In that case, the CFPB's methodology for determining
racial bias was questioned by companies and lawmakers.
Last year, American Honda Finance Corp. and Fifth Third Bancorp
signed settlements similar to Toyota's.
"As an indirect lender, TMCC has no visibility into the race or
ethnicity of its customers or credit applicants, and these factors
have no bearing on the company's credit or pricing decisions," the
company said in a news release. The company added that it
"respectfully disagrees" with the methodologies used by the federal
agencies to determine whether the industry's practices have been
discriminatory.
But the CFPB asserted that, even if Toyota wasn't intentionally
discriminating, it has a responsibility to reduce incentives that
could lead to that outcome. "Toyota Motor Credit is among the
largest indirect auto lenders, and we commend its industry
leadership in shifting to reduced discretion to address the
significant fair lending risks," CFPB Director Richard Cordray said
in a statement.
Under the latest agreement, Toyota will pay up to $21.9 million
into a settlement fund that will go to affected African-American
and Asian and Pacific Island borrowers whose auto loans were
financed by the company between January 2011 and the time of the
implementation of the new pricing structure.
The agreement won't fully eliminate the dealer's ability to mark
up interest rates for some loans. Instead, dealers now must limit
the extra charges to up to 1.25 percentage points for loans with
terms of five years or less, down from 2.5% previously.
Write to Yuka Hayashi at yuka.hayashi@wsj.com
(END) Dow Jones Newswires
February 02, 2016 18:55 ET (23:55 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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