Toyota Motor Credit Corporation, the US-based lending arm of the Japanese automaker, has been accused of illegally preventing car buyers from canceling unwanted product bundles, leading to an increase in their loan EMIs. A US consumer protection entity- The Consumer Financial Protection Bureau (CFPB) – has taken cognizance of the Texas-based company’s illicit practice of making it cumbersome for customers to cancel “add-on” services about warranty, insurance, etc., to collect more money from them every month.
The wrong-doing
Thousands of borrowers have complained that the lending dealers lied to them about whether these products were mandatory. In some cases, they rushed the paperwork so that the borrowers would not realize how much they were paying.
Those who tried to cancel these unwanted product bundles were faced with agents who discouraged them from canceling the services and often failed to provide refunds or refunded the wrong amounts. More than 118,000 borrowers were routed to a hotline where agents would carry out the practice of making these cancellations complicated.
The lending firm has also been accused of tarnishing consumers’ credit reports with false information and failing to promptly correct negative information for more than 27,500 borrowers.
“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.
Penalty and consent order
The auto-financing firm has been has been asked by the CFPB to pay a total of $60 million in penalties – $12 million in civil fines and $48 million to car buyers who have been harmed since 2016.
Though the auto-financing firm has not admitted or denied the liability, it has agreed to make it easier for customers to cancel unwanted product bundles, under a consent order by the regulator.
It also agreed to closely monitor its dealers to ensure that they do not meddle with employee pay and performance metrics based on the sales of the add-on bundles.
About Toyota Motor Credit Corporation
The US-based auto-financing arm of Toyota Motor Corporation is headquartered in Plano, Texas, and is one of the largest indirect auto lenders in the US. It has nearly five million customer accounts and more than $135 billion in assets as of October 2022.
It provides financing to consumers who buy cars through Toyota dealerships while also offering optional products and services along with the vehicles.