Toyota to Pay up to $21,900,000 to Black and Asian Borrowers to Settle Federal Discrimination Investigation

Toyota’s U.S. financing unit will pony up as much as $21.9 million to black and Asian borrowers in order to settle allegations of racial bias after it was discovered that black and Asian consumers paid more than whites for their car loans, the Los Angeles Times reports. 

According to the report, Toyota Motor Credit Corp. in Torance, Calif., had been under investigation by the Department of Justice and the federal Consumer Financial Protection Bureau since 2013 as part of a broader probe into auto lending practices. Although the agencies couldn’t find evidence of direct discrimination, it was noted that dealerships were increasing interest rates more for black and Asian borrowers than for their white counterparts. 

The Times notes that the issue isn’t with the markup in interest itself, since this is a fairly normal practice. Lenders often offer a base rate for buyers based on credit, and then dealerships are allowed to put on additional interest, known as a dealership markup. Agencies had no issue with this; rather, they took issue with the fact that dealerships added extra interest to loans for black and Asian borrowers. 

“No consumer should be forced to pay more money for a loan because of their race or national origin,” U.S. Attorney Eileen M. Decker of the Central District of California said in a statement about the settlement, the Times notes. 

According to the Times, investigators discovered that black borrowers were paying up to 0.27 percentage points more for loans than whites with similar loans and credit history, while Asian borrowers were paying up to 0.18 percentage points more. 

Toyota, the Department of Justice claimed in a complaint filed Tuesday, knew that allowing dealerships to put on additional interest created a “substantial risk of discrimination,” but still did nothing to monitor the disparities until 2014, the year after the investigation started. 

The financial arm has agreed to pay out about $20 million in restitution for those borrowers who took out loans from January 2011 to Tuesday. The company will also put aside another $2 million in order to compensate new borrowers until the company is able to put systems in place to prevent overcharging, the Times notes. 

Going forward, Toyota also plans to limit the amount of additional interest dealerships can tack on. Dealerships were able to add on as much as 2.5 percentage points to a loan, but now the markup will be capped at 1.25 points, with just 1 point for loans longer than five years, the Times reports. 

Toyota Motor Credit released a statement saying that its response to the probe was voluntary and that the company “does not tolerate discrimination of any kind, even perceived or unintentional, from its employees or business partners. This practice extends to fair lending practices.”

Read more at the Los Angeles Times.