The Justice Department and the Consumer Financial Protection Bureau are alleging that Toyota Motor Credit engaged in practices that resulted in discriminatory pricing of loans, according to a securities filing by the company.
In a recent letter to the Japanese automaker's finance arm, the two government agencies said they are prepared to start an enforcement proceeding unless Toyota Motor Credit voluntary satisfies their concerns, a document filed Friday with the Securities and Exchange Commission states.
More specifically, Justice and the CFPB "have indicated that they are seeking monetary relief and implementation of changes to our discretionary pricing practices and policies, which could adversely affect our business," the document says. "We intend to continue to cooperate with the agencies to reach a mutually satisfactory resolution."
The letter from the agencies represents the latest salvo in the Obama administration's fight against so-called discretionary markups, which allow auto dealers to raise the borrower's interest rate above the level where the lender approved the loan.
Critics of discretionary markups say they result in minority borrowers paying higher prices for auto loans. Auto lenders, including both banks and the finance arms of auto manufacturers, fear that auto dealers will abandon them if they ditch the practice unilaterally.
Toyota Motor Credit had previously disclosed that it received a request from the government for information about its auto finance business. But last week's developments represent an escalation of the matter.
Fifth Third Bancorp and Honda's finance arm have also disclosed receiving similar requests for information.
In December 2013, the CFPB reached a $98 million settlement with Ally Financial over the alleged discriminatory impact of the company's pricing practices. But despite pressure to abandon discretionary markups, Ally dug in its heels, vowing not to drive industrywide changes in pricing practices.
In April, BMO Harris announced that it was switching to a flat-fee pricing structure, in a move that drew praise from the CFPB.
Discretionary markups are just one area in which auto lenders are facing scrutiny from regulators. The Justice Department, the SEC and the New York District Attorney's Office have all opened inquiries related to subprime auto lending.