The CFPB filed a consent order against Toyota Motor Credit over voluntary protection product refund practices and credit reporting misconduct on November 20, 2023. At the heart of the order were practices that involved withholding refunds or refunding incorrect amounts on voluntary protection products, including guaranteed asset protection (GAP) agreements, vehicle service contracts (VSC), and credit life, accident, and health (CLAH) policies, as well as knowingly tarnishing consumers’ credit reports with false information. The CFPB is ordering the finance company to pay $60 million: $48 million to harmed consumers and $12 million in penalties to the CFPB’s victims’ relief fund.
The order indicates that the finance company violated the Consumer Financial Protection Act’s prohibition against deceptive, unfair, and abusive acts or practices and the Fair Credit Reporting Act.
The consent order specifies that the finance company:
- Directed consumers to a “dead-end cancellation hotline,” where consumers were required to request cancelation of a product bundle three separate times before being told by the hotline representative that the consumer could cancel only by submitting a written request
by mail or fax. - Falsely reported customer accounts as delinquent for failure to make monthly account payments even though customers had already returned leased vehicles.
- Delayed refunds by applying a refund amount as an additional payment toward the principal balance rather than issuing a refund check or lowering the monthly payment upon a consumer’s cancellation of a product.
- Failed to refund prepaid GAP and CLAH premiums to consumers when the finance agreement terminated prior to its original maturity date.
- Relied on faulty refund calculations, which resulted in incorrect refunds to consumers.
Significantly, the order further singles out practices where the bureau indicates that the finance company actively sought refunds in the event of repossessions but did not do so when a consumer paid off the finance agreement early.
The CFPB consent order specifies that the finance company must take the following measures moving forward:
- Ensure that compensation or performance measurements in relation to the finance company’s affiliated voluntary protection product company are not based upon the retention of voluntary protection products;
- Ensure that consumers are provided an online portal to cancel voluntary protection products offered by the finance company’s affiliated voluntary protection product company;
- Ensure that consumers of the voluntary protection products offered by the finance company’s affiliated voluntary protection product company are provided a minimum 30-day full refund period, or a 90-day full refund period in the event of allegations that the product was packed into a deal without the consumer’s full knowledge and informed consent;
- Ensure that consumers receive timely refunds upon the cancellation of the following add-on products offered by the finance company’s affiliated voluntary protection product company:
- Within 45 days of notice of cancellation for all GAP;
- Within 30 days of notice of cancellation for all VSC;
- Ensure that refunds are provided to consumers within 60 days of cancellation for all third-party administered GAP or CLAH products regardless of state law;
- Ensure that consumers are provided a written notice regarding refunds received by the finance company within 45 days of receipt of the same; and
- Ensure that refunds received by consumers are accurately calculated in accordance with a voluntary protection product’s terms and conditions.
While the consent order addresses aspects of one company’s process, there are important key takeaways for auto finance companies as they review their add-on product compliance risk management strategy. Many of the items identified may be address using our Managed Compliance solution leveraging CITADEL® and its FAIRRCalc® refund quote engine.
