Toyota will compensate black and Asian borrowers to settle bias investigation

Toyota's U.S. auto financing arm, headquartered in Torrance, has agreed to pay restitution to black and Asian borrowers after federal regulators found those borrowers paid more than whites for their car loans.

Toyota’s U.S. auto financing arm, headquartered in Torrance, has agreed to pay restitution to black and Asian borrowers after federal regulators found those borrowers paid more than whites for their car loans.

(Christina House / For The Times)
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Toyota’s financing arm will pay as much as $21.9 million to black and Asian borrowers who paid more for auto loans than whites, settling allegations of discrimination by federal regulators.

Toyota Motor Credit Corp. in Torrance had been under investigation by the Department of Justice and the federal Consumer Financial Protection Bureau since 2013. It had been targeted as part of a broad probe into auto lending practices that has led to similar settlements with other major auto credit companies.

The agencies didn’t find that Toyota Motor Credit discriminated directly, but rather that the automaker’s dealerships increased interest rates more for black and Asian borrowers than for whites.


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Lenders like Toyota Motor Credit offer a base rate for buyers based on their credit-worthiness. Dealerships then are allowed to tack on additional interest -- known as a dealer markup.

Regulators didn’t take issue with the markups themselves, but rather that dealerships added extra interest to loans for black and Asian borrowers.

“No consumer should be forced to pay more money for a loan because of their race or national origin,” U.S. Atty. Eileen M. Decker of the Central District of California said in a statement announcing the settlement.

Investigators found that black borrowers paid 0.27 percentage point more for loans than whites with similar loans and credit histories. Asian borrowers paid 0.18 percentage point more.

The extra interest meant that black borrowers, on average, paid as much as $200 extra over the course of their loans, while Asian borrowers paid $100 extra. It’s not clear how many borrowers were affected, but the size of the settlement implies more than 100,000 borrowers.


In a complaint filed Tuesday in Los Angeles federal court, the Justice Department said Toyota knew that allowing dealerships to mark up loans created a “substantial risk of discrimination,” but Toyota did not start monitoring markup disparities until 2014 -- the year after federal regulators started their probe.

Toyota Motor Credit has agreed to pay about $20 million in restitution to borrowers who took out loans from January 2011 to Tuesday.

The company also will set aside $2 million to compensate new borrowers until Toyota puts controls in place to prevent overcharging.

The company said it would limit the amount of extra interest dealerships can charge. They had been able to add as much as 2.5 percentage points to a loan, but the dealer markup will now be capped at 1.25 points and just 1 point for loans longer than five years.

In a statement, Toyota Motor Credit noted that its actions in response to the probe were voluntary and that the company “does not tolerate discrimination of any kind, even perceived or unintentional, from its employees or business partners. This practice extends to fair lending practices.”

The CFPB, a consumer watchdog created by the 2010 Dodd-Frank Wall Street Reform Act, has taken similar actions against other auto lenders in recent years. In 2013, it fined Ally Financial, formerly General Motors’ subsidiary GMAC, $18 million and ordered it to pay $80 million in restitution.


Last year, American Honda Finance Corp. and Fifth Third Bank, also big auto lenders, agreed to pay restitution over allegations of discriminatory lending.

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