Toyota Motor Credit Corp. Hit with Lawsuit Over 'Gap' Protection

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An Arkansas consumer has filed a proposed class action lawsuit stemming from defendant Toyota Motor Credit Corporation’s (TMCC) “systemic breach of its standard form contract related to ‘gap’ protection for vehicle financing.”

The 26-page lawsuit pegs the defendant as a financial services firm that provides funding to consumers so they can purchase vehicles from auto dealers. When a consumer buys a car from a dealer, both parties enter into a retail installment contract (RIC) that “governs the financing arrangement” that, in this scenario, is then assigned to TMCC. This arrangement allows the borrower to make periodic payments to the lender for a designated period of time, and also sets “the principal, interest rate, total amount financed,” and other assorted charges.

Upon the purchase of a vehicle, the lawsuit says, TMCC also offers consumers the option to buy “gap” protection, which the case details as “a contract ‘designed to cover the difference between what your insurance carrier will pay and what you actually owe on the car if you have an accident and the car is totaled.’” The defendant, the case continues, purports its “gap” protection product to “help protect you from coming out of pocket to pay expenses” in the event of a catastrophic car accident.

At issue in the lawsuit are allegations that TMCC’s gap protection comes as a written standardized contract tacked on to the consumer’s RIC, which the case notes is “unlike true gap insurance policies sold by insurance companies.” In addition to the $41,900 price tag on her new vehicle, the plaintiff alleged paid a separate $695 for gap protection through the defendant.

On April 26, the plaintiff was involved in a car accident while she still owed roughly $38,000 for her vehicle under her RIC agreement. TMCC, the lawsuit continues, allegedly refunded the plaintiff around $4,000 for the “unused portion of a Mechanical Repair Agreement and a Prepaid Maintenance Agreement.” After all this, there existed an estimated $10,000 gap between the amount owed by the plaintiff under her RIC agreement with the defendant and the “actual cash settlement” she received from her insurance company.

Here is where the lawsuit finally touches on its primary allegation:

“Contrary to the terms of the gap contract, TMCC did not waive [the plaintiff’s] liability for the $10,000 ‘gap.’ Instead, TMCC waived $7,997.48 and notified [the plaintiff] that she was liable to TMCC for the remaining $2,328.42 owed under the RIC. TMCC’s refusal to waive the full amount of the ‘gap’ on [the plaintiff’s] vehicle is contrary to the express terms of the gap contract.”