The auto lending arm of Japanese automaker Toyota illegally added insurance products to auto loans and then deliberately made it difficult for thousands of borrowers to remove those policies, a federal consumer watchdog agency said Monday.
The Consumer Financial Protection Bureau (CFPB) also accused Toyota Motor Credit Corporation of taking too long to pay out these insurance lines once customers canceled them. As a result, Toyota agreed to pay a fine of $60 million, of which $48 million will be paid directly to customers.
Toyota dealership employees often use collateralized insurance for asset protection and life-credit and accidental health insurance, which add an additional $700 to $2,500 to each auto loan, CFPB officials said. Employees lied about whether these insurance products were mandatory or rushed borrowers through paperwork, the agency said. That allowed Toyota to add higher finance charges to auto loans, the agency said.
“Thousands of consumers have complained to Toyota Motor Credit that dealers lied about the mandatory nature of these products, included them in contracts without borrowers’ knowledge, or rushed through red tape to hide buried terms ” said the CFPB. “Nevertheless, Toyota Motor Credit designed a system to retain revenue from these products by making cancellation extremely burdensome, and then failed to provide appropriate refunds to consumers who successfully canceled.”
Client required to do “obstacle courses”
Toyota Motor Credit “forced borrowers to navigate obstacle courses to cancel unwanted services and tarnished their credit reports,” CFPB Director Rohit Chopra said in a statement Monday.
Customers who wanted to cancel these policies were directed to call a special hotline, where representatives were responsible for persuading borrowers not to cancel them, the CFPB said. Hotline representatives would only cancel products after a customer had requested them three times, while also requiring them to submit cancellation requests in writing, according to regulators.
The CFPB did not reveal how long Toyota had engaged in these practices, but said more than 118,000 customer calls were routed to the hotline between 2016 and 2021. Some customers who canceled their insurance policies insurance and requested a refund did not receive the correct amount. back, CFPB officials said.
The CFPB also said Toyota submitted false information to credit reporting agencies, reporting that some customers were late on their rental car payments even though they had already returned the vehicle. Toyota made no effort to correct the information once the errors were spotted, the agency added.
Toyota’s alleged practices violated the Consumer Financial Protection Act and the Fair Credit Reporting Act, CFPB officials said.
“Given the growing burden of auto loan payments on Americans, we will continue to pursue large auto lenders that mislead their customers,” Chopra said.
More and more Americans are falling behind on their car payments
Toyota said Monday it agreed to terms with the CFPB without admitting any wrongdoing.
“In most cases, (Toyota Motor Credit) has already addressed the concerns cited by the bureau,” the company said in a statement to CBS MoneyWatch. “We will continue to improve our practices to provide the best possible customer experience.”
Toyota’s fine comes on top of that. Recent data from Fitch Ratings found that 6.1% of subprime borrowers were delinquent, or at least 60 days past due, on their auto loans in September – the highest proportion recorded by the credit rating agency. credit since it began tracking this figure in 1994.
All told, Americans had a total of $20 billion in auto debt as of the second quarter of this year, according to the most recent data from the Federal Reserve Bank of New York.
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