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U.S federal regulators and Toyota Motor Credit have settled an amount of $22 million in total over allegations that the car company overcharged minority groups for auto loans. The $20 million of that amount would be allocated as compensation for borrowers who took out loans between January 2011 and last month, and the other $2 million is for African-American and Asian/Pacific Islander borrowers with markup disparities.

In addition to the settled compensation, Toyota has also agreed to establish a new policy and change its pricing and compensation system. The new policy is expected to reduce markup on interest rates, and it has to be applied on August at the latest. The settlement also mentions a maximum amount of 125 basis points as a limit to auto loan markup.

Toyota Motor Credit had been investigated regarding this allegations since 2013. The claim stated that starting from 2011 until 2013, the average African-American customer have to pay more than $200 more than other loaners. Similarly, the average Asian of Pacific Islander customer has to pay more than $100 compared to other borrowers. Before the investigation, Toyota also did not require dealers to document reasons for adding basis points to loans, thus, the discrimination basis could not be immediately decided.

According to Reuters, Toyota Motor Credit said that they decided to reach a voluntary agreement, even though the corporation disagrees that their practices are results of racial discrimination. They "respectfully disagrees" with the federal
but decided to settle anyway so they could preserve consumer financing options while compensating dealer partners and upholding a commitment to fair lending practices.

Daily Breeze quoted the company's statement, "Toyota Motor Credit does not tolerate discrimination of any kind, even perceived or unintentional, from its employees or business partners. This principle extends to fair lending practices."

According to the Los Angeles Times, Toyota is not the first big auto credit company to face similar settlement over racial discrimination recently. In 2013, Ally Financial was fined $18 million and $80 million in restitution. Last year, American Honda Finance Corp. and Fifth Third Bank also reach a settlement over the similar claim.

That makes Toyota Motor Credit the fourth to be ordered to pay compensations to minority groups, specifically African-American and Asian/Pacific Islander. The investigation concluded that African-American borrowers were obliged to pay 0.27 percentage point more for loans and Asian 0.18 percentage point more. A base rate for borrowers is usually not the same for every auto loaners, but the rate should be determined based on credit-worthiness and not racial background.

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Toyota, Loan