Editor's note: An earlier version of this story misstated the time frame some African-American borrowers paid in interest expense during the course of their loans.
Toyota Motor Credit Corp. has raised its dealer reserve cap after satisfying terms of a 2016 consent order set by the Bureau of Consumer Financial Protection and the U.S. Department of Justice that required the lender to pay a hefty fine and limit dealer reserve.
Answering allegations that it overcharged thousands of minority borrowers on auto loans, in February 2016 Toyota Motor Credit agreed to pay up to $21.9 million in restitution. According to the consent order, overcharged African-American borrowers paid at least $200 more during the course of their loans, while overcharged Asian and Pacific Islander borrowers paid at least $100 more.
As part of the settlement, Toyota Motor Credit agreed to cap dealer reserve -- or the retail margin dealerships earn for arranging a loan -- at 1.25 percentage points for loans of 60 months or fewer and at 1 percentage point for loans longer than 60 months.
Though the consent order was lifted May 1, the termination of the agreement required final court approval, which was jointly sought by the company and the Department of Justice. Toyota's captive finance arm reset its dealer participation rate caps last Friday to 2 percent for all terms up to 72 months and 1.5 percent for terms of 84 months.
Spokesman Justin Leach wrote in an email to Automotive News that adjusting the dealer reserve limit will allow the lender to remain competitive in the marketplace.
"We were one of the few indirect auto lenders subject to such restrictions," he wrote. "As a result, we were put at a competitive disadvantage inasmuch as the products of other lenders offered dealers higher compensation."
Regarding the allegations of racial discrimination, Leach said that as an indirect lender, Toyota Motor Credit, "has no visibility into the race or ethnicity of its customers or credit applicants, and these factors have no bearing on the company's credit or pricing decisions."
He added: "We do not tolerate discrimination of any kind, even perceived or unintentional, at any level, and this principle extends to fair lending practices."
The consent order signed by Toyota Motor Credit, the bureau and Justice Department was to conclude in February 2019, unless Toyota Motor Credit met its requirements by the end of the second year, according to documents filed May 1 to the Securities and Exchange Commission. Because the captive met those requirements by February 2018, the term length was reduced.