On November 20, 2023, the CFPB ordered Toyota Motor Credit Corporation to pay $60 million in consumer redress and penalties for operating an illegal scheme to prevent borrowers from cancelling product bundles that increased their monthly car loan payments. The CFPB alleges that the company withheld refunds or refunded incorrect amounts on the bundled products and knowingly tarnished consumers’ credit reports with false information.
From the CFPB Director Rohit Chopra’s statement:
"Toyota's lending arm illegally withheld refunds, made borrowers run through obstacle courses to cancel unwanted services, and tarnished their credit reports. Given the growing burdens of auto loan payments on Americans, we will continue to pursue large auto lenders that cheat their customers."
Toyota Motor Credit Corporation is one of the largest indirect auto lenders in the United States, with nearly five million customer accounts and more than $135 billion in assets as of October 2022. It provides financing for consumers buying cars through Toyota dealerships, and also offers optional products and services sold with the vehicles. These products and services are often sold as a bundled package to consumers and added to the car loan contracts. Thousands of consumers complained to Toyota Motor Credit that dealers had lied about whether these products were mandatory, included them on contracts without the borrowers’ knowledge, or rushed through paperwork to hide buried terms. Nevertheless, Toyota Motor Credit managed to retain the revenue from these products by employing illegal schemes.
The CFPB alleges that Toyota Motor Corporation violated the UDAAP rules as well as the Fair Credit Reporting Act by:
Directing consumers to a dead-end cancellation hotline. The company made it difficult for consumers to cancel product bundles by directing calls through a hotline operated by employees whose primary objective was to dissuade such cancellations. The hotline representatives were instructed to keep promoting the products until consumers verbally requested cancellation three times, at which point they told the consumers that they could only cancel in writing.
Delaying refunds by applying them to principal payments. Toyota Motor Credit handled consumer cancellations of bundled products differently than usual, applying refund amounts as additional payments toward principal, thus reducing the number of monthly payments. This scheme delayed the return of the consumer’s money until the end of the sale or lease agreement term.
Withholding refunds or providing inaccurate refund amounts. The company failed to refund prepaid GAP and CLAH premiums to consumers who paid off their loan or terminated their lease before the contract ended.
Furnishing false data to consumer reporting companies. The company incorrectly reported customer accounts as delinquent for not making monthly account payments even though the customers had already returned the leased vehicles. In addition, the company did not correct the negative information that had been sent to consumer reporting companies as soon as it became aware of the error.
The CFPB orders Toyota Motor Credit to:
Pay nearly $48 million in consumer redress. Toyota Motor Credit will pay nearly $32 million to consumers who did not receive refunds on unearned GAP and CLAH premiums; over $9.9 million to consumers who tried to cancel their GAP or CLAH coverage but were unable to do so; over $6 million to consumers affected by false information sent to a consumer reporting company; and at least $52,000 to consumers who were not given accurate refunds when they canceled their vehicle service agreement.
Stop its illegal practices. Toyota Motor Credit is prohibited from tying employee compensation or performance measurements to consumers’ retention of bundled products. The company is also required to repair its cancellation process, monitor auto dealers for the imposition of these products without consumer consent, and inform consumers of their right to remove said products through online or in writing.
Pay a $12 million fine. Toyota Motor Credit will pay a $12 million civil penalty to the CFPB’s victims relief fund.
Read the CFPB’s press release here.
The consent order can be found here.