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CFPB and DOJ Reach Resolution With Toyota Motor Credit To Address Loan Pricing Policies With Discriminatory Effects

Minority Borrowers Who Paid Higher Rates for Auto Loans Will Receive Up to $21.9 Million

On May 21, 2018, the President signed a joint resolution passed by Congress disapproving the Bulletin titled “Indirect Auto Lending and Compliance with the Equal Credit Opportunity Act” (Bulletin), which had provided guidance about the Equal Credit Opportunity Act (ECOA) and its implementing regulation, Regulation B. Consistent with the joint resolution, the Bulletin has no force or effect. The ECOA and Regulation B are unchanged and remain in force and effect.
The materials relating to the Bulletin on the Bureau’s website are for reference only.

WASHINGTON, D.C. – Today the Consumer Financial Protection Bureau (CFPB) and Department of Justice (DOJ) resolved an action with Toyota Motor Credit Corporation, under which Toyota Motor Credit will change its pricing and compensation system to substantially reduce dealer discretion and accompanying financial incentives to mark up interest rates. As part of today’s order, Toyota Motor Credit is also required to pay up to $21.9 million in restitution to thousands of African-American and Asian and Pacific Islander borrowers who paid higher interest rates than white borrowers for their auto loans, without regard to their creditworthiness, as a result of its past practices.

“We are dedicated to promoting fair and equal access to credit in the auto finance marketplace,” said CFPB Director Richard Cordray. “Toyota Motor Credit is among the largest indirect auto lenders, and we commend its industry leadership in shifting to reduced discretion to address the significant fair lending risks.”

“Toyota’s reforms will level the playing field to ensure that all eligible borrowers – regardless of their race or national origin – can sign auto loans with fair terms and reasonable interest rates,” said Principal Deputy Assistant Attorney General Vanita Gupta, head of the Civil Rights Division. “While dealerships deserve fair compensation for the valuable customer service they provide, federal law protects consumers against higher price markups simply because of what they look like or where they come from. We commend Toyota for crafting a new compensation system that strikes an appropriate balance for dealers and consumers.”

“No consumer should be forced to pay more money for a loan because of their race or national origin,” said U.S. Attorney Eileen M. Decker of the Central District of California. “This settlement resolves our claims by providing compensation for affected consumers and seeking to ensure that future loans funded by Toyota reflect equal terms.”

Auto loans are the third-largest source of outstanding household debt in the United States, after mortgages and student loans. When consumers finance automobile purchases from an auto dealership, the dealer often facilitates indirect financing through a third-party auto lender like Toyota Motor Credit. Toyota Motor Credit Corporation is the U.S. financing arm of Toyota Financial Services, which is a subsidiary of Toyota Motor Corporation. Toyota Motor Credit is the largest captive auto lender in the United States and the fifth largest auto lender overall.

As an indirect auto lender, Toyota Motor Credit sets interest rates, or “buy rates,” for consumers based on credit scores and other risk criteria. Those rates are conveyed to auto dealers. Indirect auto lenders like Toyota Motor Credit then allow auto dealers to charge a higher interest rate when they finalize the deal with the consumer. This is typically called “dealer markup.” Markups can generate compensation for dealers while giving them the discretion to charge consumers different rates regardless of consumer creditworthiness. Over the time period under review, Toyota Motor Credit permitted dealers to mark up consumers’ interest rates as much as 2.5 percent.

Today’s enforcement action is the result of a joint CFPB and DOJ investigation that began in April 2013. The agencies investigated Toyota Motor Credit’s indirect auto lending activities’ compliance with the Equal Credit Opportunity Act, which prohibits creditors from discriminating against loan applicants in credit transactions on the basis of characteristics such as race and national origin. The investigation concluded that Toyota Motor Credit’s policies:

  • Resulted in minority borrowers paying higher dealer markups: Toyota Motor Credit violated the Equal Credit Opportunity Act by adopting policies that resulted in African-American and Asian and Pacific Islander borrowers paying higher interest rates for their auto loans than non-Hispanic white borrowers as a result of the dealer markups that Toyota Motor Credit permitted and incentivized. These markups were without regard to the creditworthiness of the borrowers.
  • Affected thousands of minority borrowers: Toyota Motor Credit’s pricing and compensation structure meant that for the period covered in the order, thousands of African-American borrowers were charged, on average, over $200 more for their auto loans, and thousands of Asian and Pacific Islander borrowers were charged, on average, over $100 more for their auto loans.

The investigation did not find that Toyota Motor Credit intentionally discriminated against its customers, but rather that its discretionary pricing and compensation policies resulted in discriminatory outcomes.

Enforcement Action

The Dodd-Frank Wall Street Reform and Consumer Protection Act and federal fair lending laws authorize the CFPB and DOJ to take action against creditors engaging in practices that violate the fair lending law. The CFPB’s order was filed today as an administrative action, and DOJ’s proposed order was filed in the U.S. District Court for the Central District of California. The measures provided in the orders will address the effects of Toyota Motor Credit’s past practices. Under the CFPB order, Toyota Motor Credit must:

  • Substantially reduce the amount by which loans can be marked up: Toyota Motor Credit will reduce dealer discretion to mark up the interest rate to only 1.25 percent above the buy rate for auto loans with terms of 5 years or less, and 1 percent for auto loans with longer terms. Toyota Motor Credit also has the option under the order to move to non-discretionary dealer compensation. The Bureau did not assess penalties against Toyota Motor Credit because of the proactive steps the company is taking that directly address fair lending risk by substantially reducing or eliminating discretionary pricing and compensation systems. Toyota Motor Credit has further committed that it will not fund any additional nondiscretionary component of dealer compensation by increasing its posted risk-based buy rates.
  • Pay up to $21.9 million in remediation to affected consumers: Toyota Motor Credit will pay $19.9 million into a settlement fund that will go to affected African-American and Asian and Pacific Islander borrowers whose auto loans were financed by Toyota Motor Credit between January 2011 and Feb. 2, 2016. In addition, Toyota Motor Credit will pay up to an additional $2 million into the fund to compensate any affected African-American and Asian and Pacific Islander borrowers in the time period between Feb. 2 and when Toyota Motor Credit implements its new pricing and compensation structure.
  • Pay to hire a settlement administrator to distribute funds to affected consumers: A settlement administrator will contact consumers, distribute the funds, and ensure that borrowers who were affected receive compensation. The Bureau will provide contact information for the settlement administrator once that entity is chosen to address questions that consumers may have about potential payments.

Today’s auto lending action is part of a larger joint effort between the CFPB and DOJ to address fair lending risks in the indirect auto lending market. In March 2013, the CFPB issued a bulletin explaining that it would hold indirect auto lenders accountable for unlawful pricing policies that violated the Equal Credit Opportunity Act.

In September 2014, the Bureau issued an edition of Supervisory Highlights that explained that the Bureau’s supervisory experience suggests that significantly limiting discretionary pricing adjustments may reduce or effectively eliminate pricing disparities. Substantial limits on discretionary pricing like those imposed by today’s order can address the type of fair lending risk identified in the CFPB’s bulletin and Supervisory Highlights.

This joint action marks the fourth in a series of joint CFPB and DOJ public resolutions that address the fair lending risks in dealer discretion and financial incentives. In December 2013, the CFPB and DOJ took an action against Ally Financial Inc. and Ally Bank requiring Ally to pay $80 million in consumer restitution and $18 million in civil money penalties. The action also required the implementation of an ongoing compliance management and consumer remuneration system or the elimination of discretionary markup altogether. Today’s enforcement action marks the third resolution that minimizes fair lending risks by substantially reducing dealer discretion and financial incentives. In July 2015, the CFPB and DOJ took an action against American Honda Finance Corporation requiring Honda to pay $24 million in consumer restitution and substantially reduce or entirely eliminate dealer discretion. In September 2015, the CFPB and DOJ took an action against Fifth Third Bank requiring Fifth Third to pay $18 million in consumer restitution and substantially reduce or entirely eliminate dealer discretion.

Today’s consent order is available at:

The DOJ simultaneously filed a complaint and proposed consent order to settle the auto lending case. The DOJ’s announcement is available at:

For auto loan questions or to submit a complaint, consumers can contact the CFPB at (855) 411-2372 or visit

Updated February 3, 2015 to reflect the statement by the Department of Justice.

The Consumer Financial Protection Bureau is a 21st century agency that implements and enforces Federal consumer financial law and ensures that markets for consumer financial products are fair, transparent, and competitive. For more information, visit