The lending arm of Toyota has agreed to pay $60 million to settle claims it pushed borrowers into unnecessary add-ons to new car loans and made them hard to cancel.
The Consumer Financial Protection Bureau (CFPB), a federal agency charged with protecting Americans from predatory financial products, announced the agreement. The agency “is ordering Toyota Motor Credit to stop its unlawful practices, pay $48 million to harmed consumers, and pay a $12 million penalty into the CFPB’s victims relief fund.”
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These Services Are Optional
Car dealerships sometimes sell a bundled package of financial services beyond a simple car loan. Guaranteed Asset Protection (GAP) insurance, for instance, “covers the difference (or gap) between the amount a consumer owes on an auto loan and what their insurance pays if the vehicle is stolen, damaged, or totaled.” Toyota Motor Credit also offers extended warranties beyond the warranty Toyota includes with every car and “Credit Life and Accidental Health (CLAH) coverage, which covers the remaining balance if a borrower dies or becomes disabled.”
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The CFPB found that the products added between $700 and $2,500 to the average loan.
The products aren’t mandatory, but the CFPB received thousands of complaints from consumers who said dealerships had misled them into believing they couldn’t turn them down.
A Cancelation Hotline That Wasn’t
When borrowers tried to cancel the products, the CFPB says, Toyota Motor Credit “devised a scheme to retain the revenue from these products by making it extremely cumbersome to cancel.” The company set up a cancelation hotline but trained operators “to keep promoting the products until a consumer had verbally requested to cancel three times, at which point the representatives would tell the consumer that it was only possible to cancel by submitting a written request.”
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Even if a customer completed the written request, the agency says, Toyota Motor Credit sometimes withheld refunds. The company even falsely reported missed payments to credit bureaus.
“Toyota’s lending arm illegally withheld refunds, made borrowers run through obstacle courses to cancel unwanted services, and tarnished their credit reports,” said CFPB Director Rohit Chopra. “Given the growing burdens of auto loan payments on Americans, we will continue to pursue large auto lenders that cheat their customers.”
