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Toyota's Captive Issues Statement Regarding CFPB, DOJ Allegations

December 1, 2014

By Brittany-Marie Swanson

TORRANCE, Calif. — Toyota Motor Credit Corp. revealed last week in a regulatory filing that it could face an enforcement action from the Consumer Financial Protection Bureau and the U.S. Department of Justice. According to the Nov. 28 filing with the Securities and Exchange Commission (SEC), the two agencies allege that the captive’s practices have resulted in discriminatory pricing of loans.

In an emailed statement to F&I and Showroom Monday, Toyota’s finance arm said that over the past two and a half years, it has “has activated a stronger, more robust Compliance Management System (CMS)” to help realize its consumer protection and regulatory compliance goals. It also noted that it does not collect consumer data related to race or ethnicity.

“Our intent is that these measures will contribute to a solution that meets the CFPB’s expectations and allows us to better serve our customers,” the statement read, in part. “In the meantime, and in keeping with our commitment to fair and responsible lending practices, it is important for our customers to know that we do not track the race or ethnicity of our customers or credit applicants, and these factors never influence our credit or pricing decisions.”  

The captive said in its filing that it was notified of the potential enforcement action in a Nov. 25 letter issued by the CFPB and DOJ. This notice comes a little more than a year since the captive revealed in a September 2013 filing that the bureau and the DOJ requested information regarding its pricing practices for loans it funds through auto dealers.

The finance source, which Experian Automotive had as the No. 3 finance source in the third quarter with a 4.49% share of the market, said in its recent SEC filing that it intends to cooperate with the agencies’ investigation.

“… We received from the agencies a letter alleging that such practices resulted in discriminatory pricing of loans to certain borrowers in contravention of applicable laws, and informing us that they are prepared to initiate an enforcement proceeding unless we agree to a voluntary resolution satisfactory to them,” the filing read, in part. “The agencies have indicated that they are seeking monetary relief and implementation of changes to our discretionary pricing practices and policies, which … could adversely affect our business.”

Nearly a year ago, the CFPB and DOJ took action against Ally Financial over similar allegations: The finance source was fined $98 million for allegedly engaging in an “ongoing nationwide pattern or practice of discrimination” against African-American, Hispanic and Asian/Pacific Islander borrowers in its auto lending since April 1, 2011.

Starting with a bulletin it issued in March 2013, the CFPB has said lenders will be held responsible for unlawful, discriminatory pricing that is the result of policies that allow dealers to mark up the interest rate on an auto loan in exchange for services rendered. A recent report by the American Financial Services Association, however, found that the bureau’s methodology for determining the presence of discriminatory in auto lending is inherently flawed.

The CFPB declined to comment on the action against Toyota Motor Credit when contacted by F&I and Showroom.

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