Toyota Will Compensate Black and Asian Borrowers to Settle Bias Investigation

James Rufus Koren, Los Angeles Times, February 2, 2016

Toyota’s financing arm will pay as much as $21.9 million to black and Asian borrowers who paid more for auto loans than whites, settling allegations of discrimination by federal regulators.

Toyota Motor Credit Corp. in Torrance had been under investigation by the Department of Justice and the federal Consumer Financial Protection Bureau since 2013. {snip}

The agencies didn’t find that Toyota Motor Credit discriminated directly, but rather that the automaker’s dealerships increased interest rates more for black and Asian borrowers than for whites.

Lenders like Toyota Motor Credit offer a base rate for buyers based on their credit-worthiness. Dealerships then are allowed to tack on additional interest–known as a dealer markup.

Regulators didn’t take issue with the markups themselves, but rather that dealerships added extra interest to loans for black and Asian borrowers.

{snip}

The extra interest meant that black borrowers, on average, paid as much as $200 extra over the course of their loans, while Asian borrowers paid $100 extra. It’s not clear how many borrowers were affected, but the size of the settlement implies more than 100,000 borrowers.

In a complaint filed Tuesday in Los Angeles federal court, the Justice Department said Toyota knew that allowing dealerships to mark up loans created a “substantial risk of discrimination,” but Toyota did not start monitoring markup disparities until 2014–the year after federal regulators started their probe.

Toyota Motor Credit has agreed to pay about $20 million in restitution to borrowers who took out loans from January 2011 to Tuesday.

The company also will set aside $2 million to compensate new borrowers until Toyota puts controls in place to prevent overcharging.

{snip}

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