WASHINGTON (Reuters) - Toyota Motor Credit Corp [TOYOM.UL] has agreed to pay up to $21.9 million in restitution to thousands of African-American, Asian and Pacific Islander customers, for charging them higher interest rates on auto loans than white borrowers with comparable creditworthiness, the U.S. government said.
Toyota Motor Credit will also change its pricing and compensation system to substantially reduce dealer discretion and financial incentives to mark up interest rates, the U.S. Justice Department and Consumer Financial Protection Bureau said in a statement on Tuesday.
The U.S. financing arm for the world’s largest automaker said in a statement it decided to reach a voluntary agreement with the United States so it could “preserve consumer financing options while fairly compensating its dealer partners and upholding its commitment to fair lending practices.”
It added it “respectfully disagrees with the agencies’ methodologies to determine whether industry lending practices have been discriminatory.”
The agreement limits the amount dealers can mark up a loan to a maximum of 125 basis points, according to its statement.
Ally Financial agreed to establish an $80 million restitution fund when it settled allegations of discrimination in auto financing last year. Similarly, last year the finance arm for Honda Motor Co. agreed to pay $24 million and Fifth Third Bancorp to pay $18 million over discrimination.
“The CFPB’s campaign to eliminate auto loan discounts has already cost consumers money and eroded the rights that every consumer has to negotiate and benefit from a competitive marketplace,” said a spokesman for the National Automobile Dealers Association, in reaction to the announcement.
The CEO of AutoNation, Inc. the largest U.S. auto dealership chain, has urged other dealers to follow the practices outlined in the Honda settlement, saying they could reduce variability in loans without hurting the dealer economically.
In its complaint against Toyota’s financing arm, the United States said that from 2011 through 2013 the average black customer was obliged to pay more than $200 and the average Asian or Pacific Islander customer more than “$100 more during the term of the loan because of discrimination.”
Before Sept. 10, 2014, Toyota did not require dealers to document reasons for adding basis points to loans and did not monitor its portfolio for possible discrimination, the complaint added.
Additional reporting by Eric Beech and Diane Bartz in Washington, Jonathan Stempel in New York and Joe White in Detroit; editing by Eric Walsh, David Gregorio and Andrew Hay