A Racial Penalty? Toyota to Pay Over $20 Million Settlement for Charging Black Customers More Interest for Car Loans


Institutional racism in the auto financing industry is alive and well, as it was announced that Toyota Credit, the financing arm of the automotive giant, will pay $21.9 million to Black and Asian buyers who were charged more for car loans than white customers.

As the Los Angeles Times reported, Toyota Motor Credit Corp. — the U.S. financial services arm of the world’s largest automaker — had faced investigations from the U.S. Department of Justice and the Consumer Financial Protection Bureau since 2013, a part of a wider inquiry into practices in the auto lending industry.

According to the federal agencies, the Toyota dealerships, rather than Toyota Motor Credit, discriminated against over 100,000 Black and Asian car buyers since 2011 through higher interest rates. They essentially tacked on a race-based penalty that was above and beyond the base rate that buyers receive based on their credit record.  Although dealer markups, in which dealerships add additional interest, is not an issue unto itself, the problem is charging extra to Blacks — who paid 0.27 percentage point more than whites — and Asians, who paid 0.18 point more.  This means that Black borrowers paid as much as $200 more on a car, while Asians paid an average of $100 more than whites with the same credit profile.

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

Toyota Motor Credit said the corporation “does not tolerate discrimination of any kind, even perceived or unintentional, from its employees or business partners. This practice extends to fair lending practices.”

According to Reuters, Toyota also is voluntarily taking these steps in order to “preserve consumer financing options while fairly compensating its dealer partners and upholding its commitment to fair lending practices.”  However, the company also said it “respectfully disagrees with the agencies’ methodologies to determine whether industry lending practices have been discriminatory.”

In addition to the over $20 million Toyota will pay in restitution, the company will also allocate $2 million to compensate new customers until the bilking issue is resolved, and will cap its dealer markup rates, now as high as 2.5 percentage points, to 1.25 points, with 1 point for car notes over five years.

But Toyota is not alone.  This decision comes on the heels of a number of other settlement actions involving the auto loan business.  For example, in 2013, Ally Financial — formerly the General Motors subsidiary known as GMAC — was fined $18 million by the DOJ and CFPB and settled with the feds by agreeing to create an $80 million restitution fund, amid allegations of auto loan discrimination.

Further, last year the Ohio-based Fifth Third Bank paid an $18 million settlement for charging Black and Latino customers $200 or more for auto loans than whites, with some dealerships charging as much as 2.5 percent more than the bank rate for these loans.  Dealers were allowed to keep the extra interest as compensation. The bank also paid $3 million in connection with unlawful add-on credit card services, and a $1 million fine for lending violations.

Moreover, last year, Honda Financial — the financing division of Honda — agreed to pay $24 million for its discriminatory practices. And also last year, the Justice Department reached an agreement with Evergreen Bank Group, in which the financial institution paid $395,000 to settle claims of racial discrimination in motorcycle lending.  Evergreen reportedly charged 2,200 Black and Latino borrowers higher interest rates than white customers from 2011 to 2014. This amounted to the average victim paying $200 or $250 extra for their loan due to their race or national origin.

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