The U.S. Justice Department and the Consumer Financial Protection Bureau are both accusing Toyota Motor Credit of “discriminatory pricing of loans to certain borrowers.”
On Friday, Toyota Motor Credit — the financing arm of Toyota USA — made a securities filing noting that it received a letter from the Justice Department that its lending practices “resulted in discriminatory pricing of loans to certain borrowers in contravention of applicable laws, and informing us that they are prepared to initiate an enforcement proceeding unless we agree to a voluntary resolution satisfactory to them.”
The Obama administration has recently been cracking down on auto dealers and finance companies that provide automotive lending services. Last December, Ally Financial (formerly GMAC, General Motors’ captive finance arm) agreed to pay $98 million in settlements on claims that it discriminated against more than a quarter million minority car shoppers. The Justice Department alleged that between April, 2011 and December, 2013, approximately 235,000 minority borrowers paid Ally Financial higher interest rates than white borrowers, based solely on their race, and not their credit history.
The challenge for the Justice Department is that while Ally is the loan underwriter, independent dealers typically arrange financing for shoppers in the showroom. The lender often allows the dealer to mark up the interest rate and keep the difference.
The Justice Department has proposed federal oversight of auto finance companies. The proposed rules would cover any non-bank that made more than 10,000 auto loans or leases per year. Today, only auto loan providers that are banks or bank holding companies — Ally Financial, for example — are subject to any federal oversight. The new rules would apply to as many as 530 non-bank auto lenders, and could include captive finance arms of companies like Ford, Toyota, Honda, and Volkswagen.