Toyota Motor Credit faces a penalty of $12 million, plus $48 million to customers.
The Plano, Texas based lending arm of Toyota faces significant fines from the Consumer Financial Protection Bureau (CFPB) over a scheme to illegally bilk customers with unnecessary coverages when they purchased a new vehicle. Since 2016, the lender duped customers into paying between $700 and $2,500 per loan for coverage bundles they couldn’t cancel. These bundles provide GAP (Guaranteed Asset Protection) coverage for vehicles that are stolen, damaged or need major repairs out of warranty.
Many affected customers were misled by dealers as to whether this coverage was necessary. For others, they quickly glossed over these packages in the paperwork. The CFPB, in charge of the investigation, found that Toyota Motor Credit made canceling these policies extremely difficult by design.
Nearly 120,000 borrowers had to go through a hotline in order to attempt a cancelation. Customer service operators then tried to keep customers from canceling packages, per their training. They also frequently failed to make good on refunds. Those involved even accused Toyota Motor Credit of falsely reporting missed payments from borrowers to credit reporting agencies.
How Toyota is being ordered to remedy the problem
In addition to Toyota being fined $60 million, Toyota Motor Credit has agreed to simplify the cancelation process for bundled packages. They claim they will more closely monitor their dealers so that consumers better understand what they’re paying for. The lender has approximately 5 million open accounts as of October last year.
At time of writing, the company did not release an official statement regarding the settlement.
