UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended March 31, 20182020

OR

For the transition period from _______ to _______

Commission file number 1-9961

TOYOTA MOTOR CREDIT CORPORATION

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (469) 486-9300

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

(Title of class)

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ☒    No  ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ☐    No  ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒    No  ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ☒

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.     ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

As of April 30, 2018,2020, the number of outstanding shares of capital stock, no par value per share, of the registrant was 91,500, all of which shares were held by Toyota Financial Services International Corporation.

Documents incorporated by reference: None

Reduced Disclosure Format

The registrant meets the conditions set forth in General Instruction I(1)(a) and (b) of Form 10-K and is therefore filing this Form 10-K with the reduced disclosure format.

TOYOTA MOTOR CREDIT CORPORATION

FORM 10-K

For the fiscal year ended March 31, 20182020

PART I

ITEM 1. BUSINESS

GENERAL

Toyota Motor Credit Corporation was incorporated in California in 1982 and commenced operations in 1983.  References herein to “TMCC” denote Toyota Motor Credit Corporation, and references herein to “we”, “our”, and “us” denote Toyota Motor Credit Corporation and its consolidated subsidiaries.  We are wholly-owned by Toyota Financial Services International Corporation (“TFSIC”), a California corporation, which is a wholly-owned subsidiary of Toyota Financial Services Corporation (“TFSC”), a Japanese corporation.  TFSC, in turn, is a wholly-owned subsidiary of Toyota Motor Corporation (“TMC”), a Japanese corporation.  TFSC manages TMC’s worldwide financial services operations.  TMCC is marketed under the brands of Toyota Financial Services and Lexus Financial Services.

We provide a variety of finance and insurance products to authorized Toyota and Lexus dealers or dealer groups and, to a lesser extent, other domestic and import franchise dealers (collectively referred to as “dealers”) and their customers in the United States of America (excluding Hawaii) (the “U.S.”) and Puerto Rico.  Our products fall primarily into the following categories:

We support growth in earning assets through funding obtained primarily in the global capital markets as well as funds provided by investing and operating activities.  Refer to Item 7. “Management’sManagement’s Discussion and Analysis of Financial Condition and Results of Operations, - Liquidity“Liquidity and Capital Resources” for a discussion of our funding activities.

On April 16, 2019, we announced that we will restructure our field operations to better serve our dealer partners by streamlining our field office structure and investing in new technology.  We are currently in the process of consolidating our field operations locations, which consist of dealer sales and service offices (“DSSOs”) and regional management offices located in cities throughout the U.S., into three new regional dealer service centers (“DSCs”) located in Chandler, Arizona (serving the West region), Plano, Texas (serving the Central region) and Alpharetta, Georgia (serving the East region).  The consolidation of field operations is expected to be complete by the end of fiscal year 2021.  The regional DSCs acquire retail and lease contracts from dealers, and market TMIS markets insurance products to dealers through 29dealers.  

The dealer sales and services offices (“DSSOs”).lending function, previously located at the various DSSO’s, is now centralized at the DSC located in Plano, Texas.  The DSSOs are supported by three regional management offices and we service contracts through three regional customer service centers (“CSCs”) located throughout the U.S.  The DSSOs primarily supportdealer lending function supports the dealers by acquiring retail and lease contracts and providing wholesale financing and other dealer financing activities such as business acquisitions, facilities refurbishment, real estate purchases, and working capital requirements. The DSSOs also provide support for our insurance products sold in

We service contracts through three regional customer service centers (“CSCs”) located throughout the U.S.  The CSCs support customer account servicing functions such as collections, lease terminations, and administration of both retail and lease contract customer accounts.  The Central region CSC also supports insurance product operations by providing agreement and claims administrative services.

In fiscal 2016,

As of April 1, 2020, we sold certain assetsbegan providing private label financial services to third-party automotive and liabilities relatedmobility companies commencing with the provision of services to Mazda Motor of America, Inc. (“Mazda”).  Pursuant to our industrial equipmentpreviously disclosed agreement with Mazda, we currently offer exclusive private label automotive retail, lease, and dealer portfolios (hereinafterfinancing products and services, and later in fiscal year 2021 intend to offer exclusive vehicle protection products and services, marketed under the “commercial finance business”).  Referbrand Mazda Financial Services to Note 1 – SummaryMazda customers and dealers in the United States.  Our agreement with Mazda is for an initial term of Significant Accounting Policies of the Notes to Consolidated Financial Statements for further discussion.  
approximately five years.

Public FilingsAvailable Information

Our filings with the Securities and Exchange Commission (“SEC”) may be read and copied at the SEC’s Public Reference Room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Our filings may also be found by accessing the SEC website (http:(http://www.sec.gov)www.sec.gov).  The SEC website contains reports, registration statements, and other information regarding issuers that file electronically with the SEC.  A link to the SEC website and certain of our SEC filings isare contained on our website located at: www.toyotafinancial.com under “Investor Relations, SEC Filings”.  We will make available, without charge, electronic or paper copies of our filings upon written request to:

Toyota Motor Credit Corporation

6565 Headquarters Drive

Plano, Texas 75024

Attention: Corporate Communications

Investors and others should note that we announce material financial information using the investor relations section of our corporate website (http://www.toyotafinancial.com).website.  We use our website, press releases, as well as social media to communicate with our investors, customers and the general public about our company, our services and other issues.  While not all of the information that we post on our website or on social media is of a material nature, some information could be material.  Therefore, we encourage investors, the media, and others interested in our company to review the information we post on the investor relations section of our website and the Toyota Motor Credit Corporationour Twitter feed (http://www.twitter.com/toyotafinancial).  Any changes to the social media channels we use for this purpose will be posted on the investor relations section of our corporate website.  We are not incorporating any of the information set forth on our website or on social media channels into this filing on Form 10-K.

Seasonality

Revenues generated by our retail and lease contracts are generally not subject to seasonal variations.  Financing volume is subject to a certain degree of seasonality.  This seasonality does not have a significant impact on revenues as collections, generally in the form of fixed payments, occur over the course of several years.  We are subject to seasonal variations in credit losses, which are historically higher in the first and fourth calendar quarters of the year.

Geographic Distribution of Operations

As of March 31, 2018, approximately 22 percent of retail and lease contracts were concentrated in California, 11 percent in Texas, 8 percent in New York and 5 percent in New Jersey.  As of March 31, 2018, approximately 26 percent of insurance policies and contracts were concentrated in California, 6 percent in New York, and 5 percent in both Maryland and New Jersey.  Any material adverse changes to the economies or applicable laws in these states could have an adverse effect on our results of operations and financial condition.

FINANCE OPERATIONS

The table below summarizes our financing revenues, net of depreciation by product.

Retail and Lease Financing

Pricing

We utilize a tiered pricing program, which matches interest rates with customer risk as defined by credit bureau scores and other factors for a range of price and risk combinations.  Each application is assigned a credit tier.  Rates vary based on credit tier, term, loan-to-value and collateral, including whether a new or used vehicle is financed.  In addition, special rates may apply as a result of promotional activities.  We review and adjust interest rates based on competitive and economic factors and distribute the rates, by tier, to dealers.

Underwriting

Dealers transmit customer credit applications electronically through our online system for contract acquisition.  The customer may submit a credit application directly to our website, in which case, the credit application is sent to the dealer of the customer’s choice and is considered by us for preapproval.  Upon receipt of the credit application, our loan origination system automatically requests a credit bureau report from one of the major credit bureaus.  We use a proprietary credit scoring system to evaluate an applicant’s risk profile.  Factors used by the credit scoring system (based on the applicant’s credit history) include the term of the contract, ability to pay, debt ratios, amount financed relative to the value of the vehicle to be financed, and credit bureau attributes such as number of trade lines, utilization ratio and number of credit inquiries.

Credit applications are subject to systematic evaluation.  Our loan origination system evaluates each application to determine if it qualifies for automatic approval or decline without manual intervention (“auto-decisioning”) using specific requirements, including internal credit score and other application characteristics.  Typically, the highest quality credit applications are approved automatically, and the lowest quality credit applications are automatically declined.

Credit analysts (located at the DSSOs)(working in our field operations) approve or decline all credit applications that are not auto-decisioned and may also approve an application that has been the subject of an automated decline.  Failure to be automatically approved through auto-decisioning does not mean that an application does not meet our underwriting guidelines.  A credit analyst decisions applications based on an evaluation that considers an applicant’s creditworthiness and projected ability to meet the monthly payment obligation, which is derived from, among other things, from the amount financed and the term.  A credit analyst will verify information contained in the credit application if the application presents an elevated level of credit risk.  Our proprietary scoring system assists the credit analyst in the credit review process.  The credit analyst’s final credit decision is made based upon the degree of credit risk perceived by the credit analyst after assessing the strengths and weaknesses of the application.

Completion of the financing process is dependent upon whether the transaction is a retail or lease contract.  For a retail contract, we acquire the retail contract from the dealer and obtain a security interest in the vehicle.  We perfect our security interests in the financed retail vehicles through the applicable state’sstate department of motor vehicles (or equivalent) with certificate of title filings or with a Uniform Commercial Code (“UCC”) filing,filings, as appropriate.  For a lease contract, except as described below under “Servicing”, we acquire the lease contract and concurrently assume ownership of the leased vehicle.  We have the right to pursue collection actions against a delinquent customer, as well as repossess a vehicle if a customer fails to meet contractual obligations.  

We regularly review and analyze our consumer portfolio to evaluate the effectiveness of our underwriting guidelines and purchasing criteria.  If external economic factors, credit losses, or delinquency experience, market conditions or other factors change, we may adjust our underwriting guidelines and purchasing criteria in order to change the asset quality of our portfolio or to achieve other goals and objectives.

Subvention and Incentive Programs

Toyota Motor Sales, U.S.A,U.S.A., Inc. (“TMS”), a subsidiary of Toyota Motor North America, Inc. (“TMNA”), is the primary distributor of Toyota and Lexus vehicles in the United States.  In partnership with TMNA and othercertain non-affiliated third party distributors, we may offer special promotional rates, which we refer to as subvention programs.  TMNA pays us the majority of the difference between our standard rate and the promotional rate.  Amounts received in connection with these programs allow us to maintain yields at levels consistent with standard program levels.  The level of subvention program activity varies based on the marketing strategies of TMNA, economic conditions, and volume of new and used vehicle sales.  The amount of subvention received varies based on the mix of Toyota and Lexus vehicles included in the promotional rate programs and the timing of the programs.  The majority of our retaillease contracts and leasea significant portion of our retail contracts are subvened.  We may also offer other cash and contractual residual value support incentive programs in partnership with TMNA.  Subvention and other cash incentive program payments offered in partnership with TMNA are settled at the beginning of the retail or lease contract.  We may also offer our own cash incentives and other competitive rate programs.  We defer the payments and recognize them over the life of the contract as a yield adjustment for retail contracts and as rental income or a reduction to depreciation expense for lease contracts.  

Servicing

Our CSCs are responsible for servicing the consumer portfolio.  A centralized department manages third party vendor relationships responsible for bankruptcy administration, pre charge-off collections,liquidation and post charge-off recovery liquidationactivities, certain administrative activities, customer services activities and certain administrative activitiespre-charge-off collections with support from the CSCs.  

We use an online collection and auto dialer system that prioritizes collection efforts and signals our collections personnel to make telephone contact with delinquent customers.  We also use a behavioral-based collection strategy to minimize risk of loss and employ various collection methods based on behavioral scoring models (which analyze borrowers’ payment performance, vehicle valuation and credit bureau scores to predict future payment behavior).  We generally determine whether to commence repossession efforts after an account is approximately 80 days past due.  Repossessed vehicles are held for sale to comply with statutory requirements and then sold at private auctions, unless public auctions are required by state law.  Any unpaid amounts remaining after the repossessed vehicle is sold or after taking the full balance charge-off are pursued by us to the extent practical and legally permissible.  Any surplus amounts remaining after recovery fees, disposition costs, and other expenses have been paid, and after any reserve charge-backs, dealer guarantees and optional product refunds have been credited to the customer’s account, are refunded to the customers.  Collections of post-sale deficiencies and full-balance charge-offs are handled by third party vendors and the CSCs.  We charge-off uncollectible portions of accounts when they are uncollectablean account is deemed to be uncollectible or when the account balance becomes 120 days contractually delinquent, whichever occurs first.  However, the CSCs will continue to collect or pursue recovery of the vehicle up to 190 days after the account is past due.

We may, in accordance with our customary servicing procedures, offer rebates or waive any prepayment charge, late payment charge, or any other fees that may be collected in the ordinary course of servicing the consumer portfolio.  In addition, we may defer a customer’s obligation to make a payment by extending the contract term.  Refer to Item 1A. Risk Factors, “Industry and Business Risk”-“We face various risks related to health epidemics and other outbreaks, which have had and may continue to have material adverse effects on our business, financial condition, results of operations and cash flows” and Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, “Recent Developments Related to COVID-19” for further discussion of payment relief programs offered to customers affected by the coronavirus.

Substantially all of our retail and lease contracts are purchased as non-recourse from the dealers.  This relieves the dealers of financial responsibility in the event of a customer default.

We may experience a higher risk of loss if customers fail to maintain required insurance coverage.  The terms of our retail contracts require customers to maintain physical damage insurance covering loss or damage to the financed vehicle in an amount not less than the full value of the vehicle and to provide evidence of such insurance upon our request.  The terms of each contract allow but do not require us to obtain any such insurance coverage on behalf of the customer.  In accordance with our customary servicing procedures, we do not exercise our right to obtain insurance coverage on behalf of the customer.  Our lease contracts require lessees to maintain minimum liability insurance and physical damage insurance covering loss or damage to the leased vehicle in an amount not less than the full value of the vehicle.  We currently do not monitor ongoing customer insurance coverage as part of our customary servicing procedures for the consumer portfolio.

Toyota Lease Trust, a Delaware business trust (the “Titling Trust”), acts as lessor and holds title to leased vehicles in the U.S.  This arrangement was established to facilitate lease securitizations.  We serviceTMCC services lease contracts acquired by the Titling Trust from Toyota and Lexus dealers.  We holdTMCC holds an undivided trust interest in lease contracts owned by the Titling Trust, and these lease contracts are included in Investments in operating leases, net on our Consolidated Balance Sheets.

Remarketing

The lessee may purchase the leased assetvehicle at the contractual residual value or return the leased assetvehicle to the dealer.  If the leased assetvehicle is returned to the dealer, the dealer may purchase the leased assetvehicle or return it to us.  We are responsible for disposing of the leased assetvehicle if the lessee or dealer does not purchase the assetvehicle at lease maturity.

In order to minimize losses when vehicles are returned to us, we have developed remarketing strategies to maximize proceeds and minimize disposition costs on used vehicles.  We use various channels to sell vehicles returned at lease-end andor repossessed vehicles,prior to lease-end, including a dealer direct program (“Dealer Direct”) and physical auctions.

The goal of Dealer Direct is to increase dealer purchases of off-lease vehicles thereby reducing the disposition costs of such vehicles.  Through Dealer Direct, the dealer accepting return of the lease vehicle (the “grounding dealer”) has the option to purchase the vehicle at the contractual residual value, purchase the vehicle at an assessed market value, or return the vehicle to us.  Vehicles not purchased by the grounding dealer are made available to all Toyota and Lexus dealers through the Dealer Direct online auction.  Vehicles not purchased through Dealer Direct are sold at physical vehicle auction sites throughout the country.  Where deemed necessary, we recondition used vehicles prior to sale in order to enhance the vehicle values at auction.  Additionally, we redistributeRefer to Item 1A. Risk Factors, “Industry and Business Risk”-“We face various risks related to health epidemics and other outbreaks, which have had and may continue to have material adverse effects on our business, financial condition, results of operations and cash flows”, -“A decrease in the residual values of our off-lease vehicles geographicallyand a higher number of returned lease assets could negatively affect our results of operations and financial condition” and Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, “Recent Developments Related to minimize oversupply in any location.COVID-19” for further discussion of the impact of coronavirus on our remarketing activities and residual values.

Dealer Financing

Dealer financing is comprised of wholesale financing and other financing options designed to meet dealer business needs.

Wholesale Financing

We provide wholesale financing to dealers for inventories of new and used Toyota, Lexus and other domestic and import vehicles.  We acquire a security interest in the vehicle inventory, and/or other dealership assets, as appropriate, which we perfect through UCC filings. Wholesale financing may also be backed by corporate or individual guarantees from, or on behalf of, affiliated dealers, dealer groups, or dealer principals.  In the event of a dealer default under a wholesale loan agreement, we have the right to liquidate assets in which we have a perfected security interest and to seek legal remedies pursuant to the wholesale loan agreement and any applicable guarantees.

TMCC and TMNA are parties to an agreement pursuant to which TMNA will arrange for the repurchase of new Toyota and Lexus vehicles at the aggregate cost financed by TMCC in the event of a dealer default under wholesale financing.  In addition, we provide other types of wholesale financing to certain Toyota and Lexus dealers and other third parties, at the request of TMNA or private Toyota distributors, and TMNA or the applicable private distributor guarantees the payments by such borrowers.

Other Dealer Financing

We provide fixed and variable rate working capital loans, revolving lines of credit, and real estate financing to dealers and various multi-franchise organizations referred to as dealer groups for facilities construction and refurbishment, working capital requirements, real estate purchases, business acquisitions and other general business purposes.  These loans are typically secured with liens on real estate, vehicle inventory, and/or other dealership assets, as appropriate, and may be guaranteed by individual or corporate guarantees of affiliated dealers, dealer groups, or dealer principals.  Although the loans are typically collateralized or guaranteed, the value of the underlying collateral or guarantees may not be sufficient to cover our exposure under such agreements.  Our pricing reflects market conditions, the competitive environment, the level of support dealers provide our retail, lease and insurance products and the creditworthiness of each dealer.  

Before establishing a wholesale loan or other dealer financing agreement, we perform a credit analysis of the dealer. During this analysis, we:

On the basis of this analysis, we may approve the issuance of a loan or financing agreement and determine the appropriate amount to lend.

As part of our monitoring processes, we may require dealers to submit periodic financial statements.  We also perform periodic physical audits of vehicle inventory as well as monitor the timeliness of dealer inventory financing payoffs in accordance with the agreed-upon terms to identify possible risks.

INSURANCE OPERATIONS

Gross revenues from insurance products on a consolidated basis comprised 9 percent of total gross revenues for fiscal 2018, 8 percent for fiscal 2017 and 7 percent for fiscal 2016.

Products

TMIS offers vehicle and payment protection products on Toyota, Lexus and other domestic and import vehicles that are sold by dealers as part of the dealer’s sale of a vehicle as further described below.  Vehicle service agreements offer vehicle owners and lessees mechanical breakdown protection for new and used vehicles secondary to the manufacturer’s new vehicle warranty.  Guaranteed auto protection and debt cancellation agreements provide coverage for a lease or retail contract deficiency balance in the event of a total loss or theft of the covered vehicle.  Prepaid maintenance contracts provide maintenance services at manufacturer recommended intervals.  Excess wear and use agreements are available on leases of Toyota and Lexus vehicles and protect against excess wear and use charges that may be assessed at lease termination. Tire and wheel protection agreements provide coverage in the event that a covered vehicle’s tires or wheels become damaged as a result of a road hazard or structural failure due to a defect in material or workmanship, to the extent not covered by the manufacturer or the tire distributor warranties.  Certain tire and wheel protection agreements also cover expenses related either to replacing or reprogramming a vehicle key or vehicle key remote in the event of damageloss or loss.damage.  Key replacement protection was introduced in December 2017 and provides stand-alone coverage for expenses related either to replacing or reprogramming a vehicle key or vehicle key remote in the event of damageloss or loss.

Certain Toyota, Lexusdamage.  Used vehicle limited warranty agreements are included with the purchase of a used vehicle and other domestic and import dealers elect to participate inprovides for the inventory insurance program to obtain coverage for eligible vehicle inventory through a third party who would cede 100 percent of the risk to TMIS.  TMIS in turn purchases third party reinsurance covering the excessrepair or replacement of certain dollar maximums per occurrence and incovered components that have mechanically failed on the aggregate.  Through reinsurance, TMIS limits its exposure to losses by obtaining the right to reimbursement from the assuming company for the reinsured portion of losses.  In February 2018, TMIS announced the inventory insurance program would be discontinued effective September 2018.  covered used vehicle.

TMIS provides TMNA contractual indemnity insurance coverage for limited warranties on certified Toyota and Lexus pre-owned vehicles.  TMIS also provides umbrella liability insurance to TMNA and other affiliates covering certain dollar value layers of risk above various primary or self-insured retentions.  On all layers in which TMIS provides coverage, 99 percent of the risk is ceded to various reinsurers.  In addition, until April 30, 2016,a reinsurer.  

Effective September 2018, TMIS provided property deductible reimbursementdiscontinued the wholesale inventory insurance to TMNAprogram for which certain Toyota, Lexus and other affiliates covering losses incurred under their primary policy.domestic and import dealers obtained coverage for eligible vehicle inventory.  The discontinuation of the wholesale inventory program did not have a significant impact on our results of operations or financial condition for our insurance operations.

RELATIONSHIPS WITH AFFILIATES

TMS, a subsidiary of TMNA, is the primary distributor of Toyota and Lexus vehicles in the U.S.  Our business is substantially dependent upon the sale of Toyota and Lexus vehicles and our ability to offer competitive financing and insurance products in the U.S.  Sales of Toyota and Lexus vehicles are reported publicly by TMNA. As reported by TMNA, sales of automobiles and light-duty trucks totaled 2.5 million units for both fiscal 2018 and fiscal 2016, compared to 2.4 million units for fiscal 2017.  Toyota and Lexus vehicles accounted for approximately 14 percent of all automobile and light-duty truck unit sales volume in the U.S. during fiscal 2018, fiscal 2017 and fiscal 2016.

TMCC is party to agreements with TMNA and certain TMNA subsidiaries.  For ease of reference herein, we refer solely to the parent entity, TMNA.  As a result, all references to the agreements or activities of TMNA herein that are carried out by a TMNA subsidiary are deemed to also make reference to and include the applicable TMNA subsidiary.

TMNA sponsors subvention, cash and other cashcontractual residual value support incentive programs on certain new and used Toyota and Lexus vehicles.  The level of subvention and incentive program activity varies based on TMNA marketing strategies, economic conditions, and volume of vehicle sales.  

TMCC and TMNA are parties to an agreement pursuant to which TMNA will arrange for the repurchase of new Toyota and Lexus vehicles at the aggregate cost financed by TMCC in the event of a dealer default under wholesale financing.  In addition, we provide other types of financing to certain Toyota and Lexus dealers and other third parties, at the request of TMNA or private Toyota distributors, and TMNA or the applicable private distributor guarantees the payments by such borrowers.

TMNA provides shared services to TMCC, including certain technological and administrative services, such as information systems support, facilities, insurance coverage, human resources and other corporate services.  TMCC also provides shared services to TMNA, including certain treasury and procurement services.  

Prior to January 1, 2015, our employees were generally eligible to participate in the Toyota Motor Sales, U.S.A., Inc. Pension Plan (the “Pension Plan”).  Effective January 1, 2015, the Pension Plan was closed to employees first employed or reemployed on or after such date.  Employees meeting certain eligibility requirements may participate in the Toyota Motor North America, Inc. Retirement Savings Plan (the “Savings Plan”).  Certain employees hired on or after January 1, 2015, may be eligible to receive an additional contribution to the Savings Plan calculated based on their age and compensation. Various health, life and other post-retirement benefits are offered and sponsored by TMNA, as discussed further in Note 1210 – Pension and Other Benefit Plans of the Notes to Consolidated Financial Statements.

TMCC is party to agreements with TMNA and other affiliates relating to the team member vehicle benefit program, which allows team members to lease Toyota and Lexus vehicles on terms exclusive to the benefit program. TMNA serves as the chief administrator of the program.  TMCC acquires and services team member leases entered into after the third quarter of fiscal 2018.  A portion of the vehicles used for the team member vehicle benefit program are acquired from TMNA.  TMCC receives a per vehicle contribution from participating affiliates to assist with the costs of its contribution to the benefit program, and TMCC pays a per vehicle participation fee to TMNA to participate in the benefit program.

TMCC and Toyota Financial Savings Bank (“TFSB”), a Nevada thrift company owned by TFSIC, are parties to a master shared services agreement under which TMCC and TFSB provide certain services to each other.  TMCC and TFSB are also parties to an expense reimbursement agreement, which provides that TMCC will reimburse certain expenses incurred by TFSB in connection with providing certain financial products and services to TMCC’s customers and dealers in support of TMCC’s customer loyalty strategy and programs.

TMCC is party to a revolving credit facility with TMS expiring in fiscal 2022 which may be used for general corporate purposes. This agreement is further discussed in Item 7. Management’s Discussion and TFSIC are parties to an expense reimbursement agreement.  Under the termsAnalysis of the agreement, TMCC reimbursed certain expenses incurred by TFSIC, the parentFinancial Condition and Results of TMCCOperations, “Liquidity and TFSB, with respect to costs related to TFSB’s credit card rewards program.  TFSB sold its credit card portfolio in October 2015 and no credit card rewards program costs have been incurred after such date.Capital Resources.”

Credit support agreements exist between TMCC and TFSC and between TFSC and TMC.  These agreements are further discussed in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, “Liquidity and Capital Resources.”

TMIS provides administrative services and various types of coverage to TMNA and other affiliates, including contractual indemnity coverage for limited warranties on TMNA’s certified pre-owned vehicle program and umbrella liability insurance.  Until April 30, 2016, TMIS also provided property deductible reimbursement insurance to TMNA and other affiliates.

Refer to Note 1512 – Related Party Transactions of the Notes to Consolidated Financial Statements for further information.

COMPETITION

We operate in a highly competitive environment and compete with other financial institutions including national and regional commercial banks, credit unions, savings and loan associations, online banks, and finance companies.  To a lesser extent, we compete with other automobile manufacturers’ affiliated finance companies that actively seek to purchase retail contracts through Toyota and Lexus dealers. We also compete with national and regional commercial banks and other automobile manufacturers’ affiliated finance companies for dealer financing.  No single competitor is dominant in the industry.  We compete primarily through service quality, our relationship with TMNA, and financing rates.  We seek to provide exceptional customer service and competitive financing programs to our dealers and to their customers.  Our affiliation with TMNA offers an advantage in providing financing or leasing of Toyota and Lexus vehicles.

Competition for the insurance products is primarily from national and regional independent service contract providers.  We compete primarily through service quality, our relationship with TMNA and product benefits.  Our affiliation with TMNA provides an advantage in selling our insurance products and services.

REGULATORY ENVIRONMENT

Our finance and insurance products are regulated under both federal and state law. 

Federal Consumer Finance Regulation

Our finance operations are governed by, among other federal laws, the Equal Credit Opportunity Act, the Truth in Lending Act, the Consumer Leasing Act, the Fair Credit Reporting Act, the Servicemembers Civil Relief Act, the unfair, deceptive and abusive practices (UDAAP) provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), and the consumer data privacy and security provisions of the Gramm-Leach Bliley Act.  

The Equal Credit Opportunity Act is designed to prevent credit discrimination on the basis of certain protected classes, requires the distribution of specified credit decision notices and limits the information that may be requested and considered in a credit transaction.  The Truth in Lending Act and the Consumer Leasing Act place disclosure and substantive transaction restrictions on consumer credit and leasing transactions.  The Fair Credit Reporting Act imposes restrictions and requirements regarding our use and sharing of credit reports, the reporting of data to credit reporting agencies including the accuracy and integrity of information reported, credit decision notices, consumer dispute handling procedures and identity theft prevention requirements.  The Servicemembers Civil Relief Act provides additional protections for certain customers in the military. For example, it requires us, in most circumstances, to reduce the interest rate charged to customers who have subsequently joined, enlisted, been inducted or called to active military duty, and also requires us to allow eligible servicemembers to terminate their lease agreements with us early without penalty.  UDAAP laws prohibit practices that are unfair, deceptive or abusive towards consumers.  

Federal privacy and data security laws place restrictions on our use and sharing of consumer data, impose privacy notice requirements, give consumers the right to opt out of certain uses and sharing of their data and impose safeguarding rules regarding the maintenance, storage, transmission and destruction of consumer data.  Cybersecurity and data privacy are areas of heightened legislative and regulatory focus.  The timing and effects of potential legislative or regulatory changes to data privacy regulations is uncertain.

In addition, the dealers who originate our retail and lease contracts also must comply with federal credit and trade practice statutes and regulations.  Failure of the dealers to comply with these statutes and regulations could result in remedies that could have an adverse effect on us. 

The Bureau of Consumer Financial Protection, previously known as the Consumer Financial Protection Bureau (“CFPB”), which was created by the Dodd-Frank Act, has broad regulatory,rulemaking, supervisory and enforcement authority over entities offering consumer financial services or products, including non-bank companies, such as TMCC (“Covered Entities”).  

The CFPB examinesCFPB’s supervisory authority has focused on fair lending compliance, the marketing and sale of certain optional products, including products similar to those we finance or sell through TMIS and credit reporting.  

The CFPB’s supervisory authority permits it to examine Covered Entities for compliance with consumer financial protection laws. As part of this authority, the CFPB’sThese examinations could result in enforcement actions, regulatory fines and mandated changes to our business, products, policies and procedures.

The CFPB’s rulemaking authority includes the authority to promulgate rules regarding, among other practices, debt collection practices that would apply to third-party collectors and first-party collectors, such as ourselves, and rules regarding consumer credit reporting practices.  The timing and impact of these rules on our business remain uncertain.

In addition, the CFPB has increased scrutiny of the sale of certain ancillary or add-on products, including products similar to those we finance.  The CFPB has questioned such products’ value and how such products are marketed and sold.

The CFPB also hasCFPB’s enforcement authority under whichpermits it is authorized to conduct investigations (which may include a joint investigation with other agencies and regulators) of, and initiate enforcement actions forrelated to, violations of federal consumer financial protection laws. The CFPB has the authority to obtain cease and desist orders (which can include orders for restitution or rescission of contracts, as well as other types of affirmative relief), or other forms of remediation, and/or impose monetary penalties.  The CFPB and the Federal Trade Commission (“FTC”) have become more active in investigatingmay investigate the products, services and operations of credit providers, including banks and other finance companies engaged in auto finance activities.  BothAs a result of such investigations, both the CFPB and FTC have announced various enforcement actions against lenders in the past few years involving significant penalties, consent orders, cease and desist orders and similar remedies that, if applicable to us andor the products, services and operations we offer, may require us to cease or alter certain business practices, which could have a material adverse effect on our results of operations, financial condition, and liquidity.    

The CFPB has focused on the area of auto finance, particularly with respect to indirect financing arrangements, dealer compensation and fair lending compliance.  In March 2013, the CFPB issued a bulletin stating that indirect auto lenders may be liable for violations under the Equal Credit Opportunity Act based on dealer-specific and portfolio-wide disparities on a prohibited basis.  According to the bulletin, these disparities result from allowing dealers to mark up the interest rate offered by the indirect auto lenders to the contract rate offered to consumers by the dealers.  In addition, the bulletin outlined steps that indirect auto lenders should take in order to comply with fair lending laws regarding dealer markup and compensation policies.  On May 21, 2018, President Trump signed into law a resolution approved by Congress under the Congressional Review Act that repealed the CFPB’s fair lending guidance contained in the bulletin and prohibits the future enactment of a similar rule without Congressional approval.

As previously disclosed, in February 2016, we entered into consent orders with the CFPB and the U.S. Department of Justice (collectively, the “Agencies”) to reflect the settlement of the Agencies’ allegations regarding our purchases of auto finance contracts from dealers and related discretionary dealer compensation practices (together, the “Consent Orders”).  The Consent Orders were to be effective for three years, until February 2019, unless we met certain requirements at the end of the second year of the Consent Orders, in which case, the term of the Consent Orders could be reduced from three years to two years.  

We have been advised by the Agencies that we have satisfied the requirements for early termination of the Consent Orders.  The termination of the Consent Orders is conditioned upon our completion of the distribution of the consumer restitution funds required by the Consent Orders and was effective May 1, 2018.  TMCC and the DOJ sought final court approval of a joint stipulation that we had satisfied our obligations under the Consent Orders, which was endorsed by the court on May 16, 2018.  

CFPB supervision and enforcement actions, if any, may result in monetary penalties, increase our compliance costs, require changes in our business practices, affect our competitiveness, impair our profitability, harm our reputation or otherwise adversely affect our business.  

State Consumer Finance Regulation

A majority of states (and Puerto Rico) have enacted legislation establishing licensing requirements to conduct financing activities. We must renew these licenses periodically.  Most states also impose limits on the maximum rate of finance charges.  In certain states, the margin between the present statutory maximum interest rates and borrowing costs is sufficiently narrow that, in periods of rapidly increasing or high interest rates, there could be an adverse effect on our operations in these states if we were unable to pass on increased interest costs to our customers.  Some state laws impose rate and other restrictions on credit transactions with customers in active military status in addition to those imposed by the Servicemembers Civil Relief Act.

State laws also impose requirements and restrictions on us with respect to, among other matters, required credit application and finance and lease disclosures, late fees and other charges, the right to repossess a vehicle for failure to pay or other defaults under the retail or lease contract, other rights and remedies we may exercise in the event of a default under the retail or lease contract, privacy matters, and other consumer protection matters.  Many states are also focusing on cybersecurity and data privacy as areas warranting consumer protection.  Some states have passed complex legislation dealing with consumer information, which impacts companies such as TMCC.  For example, in California a new data protection regime has taken effect, that grants consumers broad new rights relating to access to, deletion of, and sharing of personal information that is collected by businesses and requiring regulated entities to establish measures to identify, manage, secure, track, produce and delete personal information.  In some jurisdictions, these laws and regulations provide a private right of action that would allow customers to bring suit directly against us for mishandling their data for certain violations of these laws and regulations.  

TMIS operations are subject to state regulations and licensing requirements.  State laws vary with respect to which products are regulated and what types of corporate licenses and filings are required to offer certain products.  Certain products offered by TMIS are covered by state privacy laws.laws as well as new cybersecurity and data privacy legislation.  Our insurance company subsidiaries must be appropriately licensed in certain states in which they conduct business, must maintain minimum capital requirements and file annual financial information as determined by their state of domicile and the National Association of Insurance Commissioners.  Failure to comply with these requirements could have an adverse effect on insurance operations in a particular state.  We actively monitor applicable laws and regulations in each state in order to maintain compliance.

Recently, stateState regulators are taking a more stringent approach to supervising and regulating providers of financial products and services subject to their jurisdiction.  We expect to continue to face greater supervisory scrutiny and enhanced supervisory requirements for the foreseeable future.  For example, on January 28, 2015, we received a request for documents and information from the New York State Department of Financial Services relating to our lending practices (including fair lending), and on April 6, 2016, we received a request for documents and information pursuant to a civil investigative demand from the Commonwealth of Massachusetts Office of the Attorney General relating to our financing of guaranteed auto protection (“GAP”) agreements on retail contracts.  We provided the requested documents and information, but have not had further communication with either agency regarding their respective reviews.

Other Federal and International Regulation

The Dodd-Frank Act also established the Financial Stability Oversight Council (the “FSOC”), which may designate non-bank financial companies that pose systemic risk to the U.S. financial system (“SIFIs”) to be supervised by the Federal Reserve.  The Federal Reserve is required to establish and apply enhanced prudential standards to SIFIs, including capital, liquidity, counterparty exposure, resolution plan and overall risk management standards.  The FSOC uses a multi-stage review process to evaluate non-bank financial companies for potential designation and supervision by the Federal Reserve.  If we were designated for supervision after this multi-stage review process and any available appeal processes, we could experience increased compliance costs, the need to change our business practices, impairments to our profitability and competitiveness and other adverse effects on our business.

Under the Volcker Rule, companies affiliated with U.S. insured depository institutions are generally prohibited from engaging in “proprietary trading” and certain transactions with certain privately offered funds.  The activities prohibited by the Volcker Rule are not core activities for us.  Accordingly, we do not believe the Volcker Rule and its implementing regulations are likely to have a material effect on our business or operations.  In the future, however, the federal financial regulatory agencies charged with implementing the Volcker Rule could amend the rule or change their approach to administering, enforcing or interpreting the rule, which could negatively affect us and potentially require us to limit or change our activities or operations.

The Dodd-Frank Act amended the U.S. Commodity Exchange Act (“CEA”) to establish a comprehensive framework for the regulation of certain over-the-counter (“OTC”) derivatives referred to as swaps.  Under the Dodd-Frank Act, the Commodity Futures Trading Commission (“CFTC”) is required to adopt certain rules and regulations governing swaps.  The CFTC has completed the majorityalmost all of its regulations in this area, most of which are in effect.

The OTC derivatives provisions of the CEA, as amended by the Dodd-Frank Act, impose clearing, trading and margin requirements on certain contracts.  At present, we qualify for exceptions from these requirements for the swaps that we enter into to hedge our commercial risks.  However, if we were to fail tono longer qualify for such exceptions, we could become subject to some or all of these requirements, which would increase our cost of entering into and maintaining such hedging positions.  Moreover, the application of the clearing, trading and margin requirements, and other related regulations, to our dealer counterparties may change the cost and availability of the OTC derivatives that we use for hedging.  Certain other requirements, such as reporting and recordkeeping, also apply to such instruments, but are not expected to have a material impact on us.

The full impact of the OTC derivatives provisions of the Dodd-Frank Act and related regulatory requirements upon our business will not be known until the regulations are fully implemented and the market for derivatives contracts has adjusted. The Dodd-Frank Act and related regulations could significantly increase the cost of OTC derivative contracts, materially alter the terms of OTC derivative contracts, reduce the availability of OTC derivatives to protect against risks we encounter, or reduce our ability to monetize or restructure our existing OTC derivative contracts. If we reduce our use of OTC derivatives as a result of the Dodd-Frank Act and resulting regulations, our results of operations may become more volatile and our cash flows may be less predictable, which could adversely affect our ability to plan for and fund capital expenditures.  The Trump Administration has indicated in public statements that the Dodd-Frank Act will be under scrutiny and that some of its provisions and the rules promulgated thereunder may be revised, repealed or amended. Any such changes, including their nature and impact, cannot yet be determined with any degree of certainty.

We continually review our operations for compliance with applicable laws.  Future administrative rulings, judicial decisions, legislation, regulations and regulatory guidance, and supervision and enforcement actions may result in monetary penalties, increase our compliance costs, require changes in our business practices, affect our competitiveness, impair our profitability, harm our reputation or otherwise adversely affect our business.

Refer to “PartPart 1, Item 1A. Risk Factors – The“The regulatory environment in which we operate could have a material adverse effect on our business and results of operations.”

EMPLOYEE RELATIONS

At April 30, 2018,2020, we had approximately 3,300 full-time employees.  We consider our employee relations to be satisfactory.  We are not subject to any collective bargaining agreements with our employees.

ITEM 1A. RISK FACTORS

We are exposed to certain risks and uncertainties that could have a material adverse impact on our business, results of operations and financial condition.  There may be additional risks and uncertainties not presently known to us or that we currently consider immaterial that may also have a material adverse impact on our business, results of operations and financial condition.

Industry and Business Risk

We face various risks related to health epidemics and other outbreaks, which have had and are expected to continue to have material adverse effects on our business, financial condition, results of operations and cash flows.

We face various risks related to health epidemics and other outbreaks, including the global outbreak of coronavirus (“COVID-19”).  The COVID-19 pandemic, changes in consumer behavior related to illness, pandemic fears and market downturns, and restrictions intended to slow the spread of COVID-19, including quarantines, government-mandated actions, stay-at-home orders and other restrictions, have led to disruption and volatility in the global capital markets, which has increased our cost of capital and adversely affected our ability to access the capital markets.  For more information on how a disruption in the global capital markets affects our liquidity, please see risk factor “A disruption in our funding sources and access to the capital markets would have an adverse effect on our liquidity”.

In addition, the COVID-19 pandemic and restrictions intended to slow the spread of COVID-19 have adversely affected our business, and the business of our affiliate, TMNA, and our ultimate parent, TMC, in a number of ways. Similar to relief options we offer to customers and dealers impacted by natural disasters such as hurricanes, floods, tornadoes and wildfires, we are offering payment relief options to customers and dealers impacted by COVID-19, including finance contract extensions, lease deferred payments, temporary interest deferrals for dealer floorplan financing, and principal payment deferral options for dealer real estate and working capital loans, and temporarily suspended outbound collection activities in states with state-wide stay-at-home orders and repossession activities nationwide for a period of time, but have since resumed outbound collection activities in nearly all states (collectively, the “COVID-19 Relief”).  Our payment relief programs currently allow existing customers who request assistance to defer their loan or lease payments for up to 120 days and waive certain fees, but with interest continuing to accrue.  We may terminate, or modify the scope, duration and terms of, our COVID-19 payment relief programs at any time.  Unlike the relief options offered for natural disasters, which were limited to the affected geographies, the COVID-19 Relief is being offered nationwide due to the global impact of the COVID-19 pandemic, and may not be successful in reducing future increases to our provisions for credit losses.  The COVID-19 pandemic has increased our residual value losses, and has adversely affected our business, financial condition, results of operations, and cash flows and may continue to do so if there is not a substantial economic recovery.  We have also temporarily transitioned nearly all of our team members to remote work arrangements, and many Toyota and Lexus dealerships have temporarily closed and more may voluntarily close, or be mandated to close, in the near future.  TMNA temporarily suspended production at all of its automobile and components plants in North America from March 23, 2020 through May 8, 2020 and TMC has temporarily suspended production at selected plants in countries outside of North America.  Although TMNA and many of its suppliers are resuming production, unexpected delays affecting the supply chain or logistics network could negatively impact dealer inventory levels, vehicle sales, the sale of our financing and insurance products, dealer profitability and creditworthiness, and our future results of operations.

These events have disrupted the supply chains of the vehicles we finance, and have had a material adverse effect on the sale of vehicles and our financing and insurance products.  These events have also caused an unprecedented level of unemployment claims, resulted in a significant decline in consumer confidence and spending, and a sharp decline in economic conditions.  In addition, these events have caused a significant decline in used vehicle prices, and significant increase in delinquencies and may cause an increase in dealer defaults, which have resulted in materially increased provisions for credit losses and residual value losses, which may continue if there is not a substantial economic recovery.  The foregoing events, and the uncertainty relating thereto, have also adversely affected our credit rating and may result in further actions or downgrades by credit ratings agencies.  For more information regarding impacts of credit rating changes on TMCC, please see risk factor “Our borrowing costs and access to the unsecured debt capital markets depend significantly on the credit ratings of TMCC and its parent companies and our credit support arrangements”.

If significant portions of our workforce are unable to work effectively as a result of the COVID-19 pandemic, including because of illness, quarantines, facility closures, ineffective remote work arrangements or technology failures or limitations, our operations would be adversely impacted.  Certain of our third-party suppliers and business partners that we rely on to deliver our products and services and to operate our business have informed us that they will be unable to perform fully, and we may receive similar notifications from other suppliers and business partners in the near future, which could adversely impact our ability to operate our business and increase our costs and expenses.  These increased costs and expenses may not be fully recoverable or adequately covered by insurance.  We are working with our stakeholders (including customers, dealers, team members, suppliers and business partners) to assess the ongoing impact of the COVID-19 pandemic and to take actions in an effort to mitigate adverse consequences.

The duration and possible resurgence of the COVID-19 pandemic is uncertain.  The extension of curtailed economic activities as a result of further outbreak of COVID-19, extended or additional government restrictions intended to slow the spread of the virus, or delayed consumer response once restrictions have been lifted could have further negative impact on used vehicle values, consumer economics, dealerships, and auction sites, which could have a material adverse impact on our future results of operations.  If the number of our customers and dealers experiencing hardship increases or it becomes necessary to further extend our payment relief options, it could have a material adverse effect on our business, financial condition and our future results of operations.

The foregoing impacts and other unforeseen impacts not referenced herein, as well as the ultimate impact of the COVID-19 pandemic, are difficult to predict and have had and are expected to have a material adverse effect on our business, financial condition, results of operations and cash flows.

General business, economic, and geopolitical conditions, as well as other market events, may adversely affect our business, results of operations and financial condition.

Our results of operations and financial condition are affected by a variety of factors.  These factors, includeincluding changes in the overall market for retail contracts, wholesale motor vehicle financing, leasing or dealer financing, the new and used vehicle market, changes in the level of sales of Toyota and Lexus vehicles, the rate of growth in the number and average balance of customer accounts, the U.S. regulatory environment, competition from other financiers, rate of default by our customers, the interest rates we are required to pay on the funding we require to support our business, amounts of funding available to us, changes in the U.S. and international wholesale capital funding markets, our credit ratings, the success of efforts to expand our product lines, levels of operating and administrative expenses (including, but not limited to, personnel costs, technology costs and premises costs (including costs associated with reorganization or relocation), general economic conditions, inflation, and fiscal and monetary policies in the U.S., Europe and other countries in which we issue debt.  Further, a significant and sustained increase in fuel prices could lead to diminishedlower new and used vehicle purchases.  This could reduce the demand for retail, lease and wholesale financing.  In turn, lower used vehicle values could affect return rates, charge-offs and depreciation on operating leases.

Economic slowdown and recession in the United States may lead to diminished consumer and business confidence, lower household incomes, increases in unemployment rates, higher consumer debt levels andas well as higher consumer and commercial bankruptcy filings, any of which could adversely affect vehicle sales and discretionary consumer spending.  These conditions may decrease the demand for our financing products, as well as increase our delinquencies and credit losses.  In addition, because our credit exposures are generally collateralized by vehicles, the severity of losses can be particularly affected by declines in used vehicle values.  Dealers mayare also be affected by economic slowdown and recession, which in turn may increaseincreases the risk of default of certain dealers within our dealer portfolio.

Elevated levels of market disruption and volatility, such as in the U.S., Europe and Asia, could increase our cost of capital and adversely affect our ability to access the global capital markets and fund our business in a similar manner, and at a similar cost as we have hadto the funding raised in the past.  These market conditions could also have an adverse effect on our results of operations and financial condition by diminishing the value of our investment portfolio and increasing our cost of funding.  If as a result we increase the rates we charge to our customers and dealers, our competitive position could be negatively affected.

Challenging market conditions may result in less liquidity, greater volatility, widening of credit spreads and lack of price transparency in credit markets.  Changes in investment markets, including changes in interest rates, exchange rates and returns from equity, property and other investments, will affect (directly or indirectly) our financial performance.

If there is a continued and sustained period of market disruption and volatility:

Any of these developments could have an adverse effect on our results of operations and financial condition.

Geopolitical conditions and other market events may also impact our results of operations.  Restrictive exchange or import controls or other disruptive trade policies, disruption of operations as a result of systemic political or economic instability, social unrest, outbreak of war or expansion of hostilities, health epidemics and other outbreaks, and acts of terrorism, could each have a material adverse effect on our results of operations and financial condition.  Developments related to the United Kingdom’s recent withdrawal from the European Union (“Brexit”) have created significant political and economic uncertainty in the United Kingdom and in other European Union member states. While we operate in the U.S. and Puerto Rico, the global financial, trade, and legal implications of Brexit could lead to declines in market liquidity and activity levels, volatile market conditions, a contraction of available credit, fluctuations in interest rates, weaker economic growth, and reduced business confidence on an international level, each of which could have a material adverse effect on our results of operations and financial condition.

Our results of operations and financial condition are substantially dependent upon the sale of Toyota and Lexus vehicles, as well as our ability to offer competitive financing and insurance products.

We primarily provide a variety of finance and insurance products to authorized Toyota and Lexus dealers and their customers in the U.S.  Accordingly, our business is substantially dependent upon the sale of Toyota and Lexus vehicles in the U.S.  Changes in the volume of sales may result from governmental action or changes in governmental regulation or trade policies, changes in consumer demand, new vehicle incentive programs, recalls, the actual or perceived quality, safety or reliability of Toyota and Lexus vehicles, economic conditions, increased competition, increases in the price of vehicles due to increased raw material costs, changes in import fees or tariffs on raw materials or imported vehicles, changes to or withdrawals from trade agreements (for example,(including the North American Free Trade Agreement),United States-Mexico-Canada Agreement, which is expected to go into effect during fiscal year 2021, currency fluctuations, fluctuations in interest rates, decreased or delayed vehicle production due to natural disasters, supply chain interruptions or other events.  In addition, many manufacturers have increased their level of incentive programs on new vehicles in an attempt to maintain and grow market share; these incentives historically have included a combination of subvention, price rebates, and other incentives.  Any negative impact on the volume of TMNA sales could have a material adverse effect on our business, results of operations, and financial condition.

TMS, a subsidiary of TMNA, is the primary distributor of Toyota and Lexus vehicles in the U.S.  While TMNA conducts extensive market research before launching new or refreshed vehicles and introducing new services, many factors both within and outside TMNA’s control affect the success of new or existing products and services in the marketplace.  Offering vehicles and services that customers want and value can mitigate the risks of increasing price competition and declining demand, but products and services that are perceived to be less desirable (whether in terms of product mix, price, quality, styling, safety, overall value, fuel efficiency, or other attributes) and the level of availability of products and services that are desirable can exacerbate these risks.  With increased consumer interconnectedness through the internet, social media, and other media, mere allegations relating to quality, safety, fuel efficiency, corporate social responsibility, or other key attributes can negatively impact TMNA’s reputation or market acceptance of its products or services, even where such allegations prove to be inaccurate or unfounded.

Additionally,In addition, the volume of TMNA sales may also be affected by Toyota’s ability to successfully grow through investments in the area of emerging opportunities such as mobility and connected services, vehicle electrification, fuel cell technology and autonomy, which depends on many factors, including advancements in technology, regulatory changes, and other factors that are difficult to predict.

We operate in a highly competitive environment and compete with other financial institutions and, to a lesser extent, other automobile manufacturers’ affiliated finance companies primarily through service, quality, our relationship with TMNA, and financing rates.  TMNA sponsors subvention, cash, and othercontractual residual value support incentive programs offered by us on certain new and used Toyota and Lexus vehicles.  Our ability to offer competitive financing and insurance products in the U.S. depends in part on the level of TMNA sponsored subvention, cash, and othercontractual residual value support incentive program activity, which varies based on TMNA marketing strategies, economic conditions, and the volume of vehicle sales, among other factors.  Any negative impact on the level of TMNA sponsored subvention, cash, and othercontractual residual value support incentive programs could in turn have a material adverse effect on our business, results of operations, and financial condition.

Changes in consumer behavior could affect the automotive industry, TMNA and TMC, and, as a result, our business, results of operations and financial condition.

A number of trends are affecting the automotive industry. These include a market shift from cars to sport utility vehicles (“SUVs”) and trucks, high demand for incentives, the rise of mobility services such as vehicle sharing and ride hailing, the development of autonomous and alternative-energy vehicles, the impact of demographic shifts on attitudes and behaviors toward vehicle ownership and use, the development of flexible alternatives to traditional financing and leasing such as subscription service offerings, changing expectations around the vehicle buying experience, adjustments in the geographic distribution of new and used vehicle sales, and advancements in communications and technology. Any one or more of these trends could adversely affect the automotive industry, TMNA and TMC, and could in turn have an impact on our business, results of operations and financial condition.

Recalls and other related announcements by TMNA could affect our business, results of operations and financial condition.

TMNA periodically conducts vehicle recalls which could include temporary suspensions of sales and production of certain Toyota and Lexus models. Because our business is substantially dependent upon the sale of Toyota and Lexus vehicles, such events could adversely affect our business.  A decrease in the level of sales, including as a result of the actual or perceived quality, safety or reliability of Toyota and Lexus vehicles or a change in standards of regulatory bodies will have a negative impact on the level of our financing volume, insurance volume, earning assets, Net financing revenues and insurance revenues.  The credit performance of our dealer and consumer portfolios may also be adversely affected.  In addition, a decline in the values of used Toyota and Lexus vehicles would have a negative effect on residual values and return rates, which, in turn, could increase depreciation expense and credit losses.  Further, certain of TMCC’s affiliated entities are or may become subject to litigation and governmental investigations and have been or may become subject to fines or other penalties.  These factors could affect sales of Toyota and Lexus vehicles and, accordingly, could have a negative effect on our business, results of operations and financial condition.

If we are unable to compete successfully or if competition increases in the businesses in which we operate, our results of operations could be negatively affected.

We operate in a highly competitive environment.  We compete with other financial institutions including national and regional commercial banks, credit unions, savings and loan associations, finance companies, and to a lesser extent, other automobile manufacturers’ affiliated finance companies.  In addition, online financing options provide consumers with alternative financing sources.  Increases in competitive pressures could have an adverse impact on our contract volume, market share, Net financing revenues, insurance revenues and margins.  Further, the financial condition and viability of our competitors and peers may have an adverse impact on the financial services industry in which we operate, resulting in a decrease in the demand for our products and services.  This could have an adverse impact on the volume of our business and our results of operations.

A failure or interruption in our operations could adversely affect our results of operations and financial condition.

Operational risk is the risk of loss resulting from, among other factors, lack of established processes, inadequate or failed processes, systems or internal controls, theft, fraud, natural disasters or other catastrophes (including without limitation, explosions, fires, floods, earthquakes, terrorist attacks, riots, civil disturbances and health epidemics and other outbreaks).  Operational risk can occur in many forms including, but not limited to, errors, business interruptions, failure of controls, failure of systems or other technology, deficiencies in our insurance risk management program, inappropriate behavior or misconduct by our employees or those contracted to perform services for us, and vendors that do not perform in accordance with their contractual agreements.  We have established business recovery plans to address interruptions in our operations, but we can give no assurance that these plans will be adequate to remediate all events that we may face.  A catastrophic event that results in the destruction or disruption of any of our

critical business or information technology systems could harm our ability to conduct normal business operations.  These events can potentially result in financial losses or other damage to us, including damage to our reputation.

We rely on a framework of internal controls designed to provide a sound and well-controlled operating environment.  Due to the complexity of our business and the challenges inherent in implementing control structures across large organizations, control issues could be identified in the future that could have a material adverse effect on our operations.

We are currently in the process of consolidating our field operations, which consist of DSSO’s, three regional management offices, and two dealer funding teams, into three new regional dealer service centers.  Our dealer lending function will be centralized at the new dealer service center located in Plano, Texas.  Refer to Item 1.  Business, “General” for further discussion of the field operations restructuring.  We can give no assurance that the restructuring of our field operations will be completed as planned or within the expected timing or budget, and the expected benefits may not be fully realized due to associated disruption to field operations and personnel.

In addition, many parts of our business are dependent on key personnel.  Our future success depends on our ability to retain existing, and attract, hire and integrate new key personnel and other necessary employees.  Any failure to do so could adversely affect our business, results of operations and financial condition.

Our private label financial services for third-party automotive and mobility companies may expose us to additional risks that could adversely affect our business, results of operations and financial condition.

As of April 1, 2020, we began providing private label financial services to third-party automotive and mobility companies commencing with the provision of services to Mazda Motor of America, Inc. (“Mazda”).  Pursuant to our previously disclosed agreement with Mazda, we currently offer exclusive private label automotive retail, lease, and dealer financing products and services, and later in fiscal year 2021 intend to offer exclusive vehicle protection products and services, marketed under the brand Mazda Financial Services to Mazda customers and dealers in the United States.  Our agreement with Mazda is for an initial term of approximately five years.

Although we intend to leverage our strengths and capabilities to serve and retain new Mazda customers, we may encounter additional costs and may fail to realize the anticipated benefits of our private label finance services program. The provision of wholesale and retail financing to Mazda dealers and customers may result in additional credit risk exposure, which if we are unable to appropriately monitor and mitigate may result in an adverse effect on our results of operations and financial condition.  Our private label finance services may also expose us to additional operating risks related to consumer demand for Mazda vehicles, the profitability and financial condition of Mazda, the level of Mazda’s incentivized retail financing, recalls announced by Mazda and the perceived quality, safety or reliability of Mazda vehicles, and changes in prices of Mazda used vehicles and their effect on residual values of Mazda off-lease vehicles and return rates, each of which may adversely affect our business, results of operations and financial condition.

Financial Market and Economic Risks

Our borrowing costs and access to the unsecured debt capital markets depend significantly on the credit ratings of TMCC and its parent companies and our credit support arrangements.

The availability and cost of financing is influenced by credit ratings, which are intended to be an indicator of the creditworthiness of a particular company, security or obligation.  Our credit ratings depend, in large part, on the existence of the credit support arrangements with TFSC and TMC and on the financial condition and results of operations of TMC.  If these arrangements (or replacement arrangements acceptable to the rating agencies) become unavailable to us, or if the credit ratings of the credit support providers were lowered, our credit ratings would be adversely impacted.

Credit rating agencies which rate the credit of TMC and its affiliates, including TMCC, may qualify or alter ratings at any time.  Global economic conditions and other geopolitical factors may directly or indirectly affect such ratings.  Any downgrade in the sovereign credit ratings of the United StatesU.S. or Japan may directly or indirectly have a negative effect on the ratings of TMC and TMCC.  Downgrades or placement on review for possible downgrades could result in an increase in our borrowing costs as well as reduced access to the global unsecured debt capital markets.  These factors would have a negative impact on our competitive position, results of operations, liquidity and financial condition.

A disruption in our funding sources and access to the capital markets would have an adverse effect on our liquidity.

Liquidity risk is the risk arising from our ability to meet obligations in a timely manner when they come due. Our liquidity strategy is to maintain the capacity to fund assets and repay liabilities in a timely and cost-effective manner even in adverse market conditions.  A disruption in our funding sources may adversely affect our ability to meet our obligations as they become due.  An inability to meet obligations in a timely manner would have a negative impact on our ability to refinance maturing debt and fund new asset growth and would have an adverse effect on our results of operations and financial condition.

Refer to Item 7. “Management’sManagement’s Discussion and Analysis of Financial Condition and Results of Operations, - Liquidity“Liquidity and Capital Resources” for further discussion of liquidity risk.

Our allowance for credit losses may not be adequate to cover actual losses, which may adversely affect our results of operations and financial condition.

We maintain an allowance for credit losses to cover probable and estimable losses as of the balance sheet date resulting from the non-performance of our customers and dealers under their contractual obligations.  The determination of the allowance involves significant assumptions, complex analyses, and management judgment and requires us to make significant estimates of current credit risks using existing qualitative and quantitative information. Actual results may differ from our estimates or assumptions.  For example, we review and analyze external factors, including changes in economic conditions, actual or perceived quality, safety and reliability of Toyota and Lexus vehicles, unemployment levels, the used vehicle market, and consumer behavior, among other factors.  Internal factors, such as purchase quality mix and operational changes are also considered.  A change in any of these factors would cause a change in estimated probable losses.  As a result, our allowance for credit losses may not be adequate to cover our actual losses.  In addition, changes in accounting rules and related guidance, new information regarding existing portfolios, and other factors, both within and outside of our control, may require changes to the allowance for credit losses.  A material increase in our allowance for credit losses may adversely affect our results of operations and financial condition.

Refer to Item 7. “Management’sManagement’s Discussion and Analysis of Financial Condition and Results of Operations, - Critical“Critical Accounting Estimates” for further discussion of the estimates involved in determining the allowance for credit losses and Note 15 – Summary of Significant Accounting PoliciesAllowance for Credit Losses of the Notes to Consolidated Financial Statements for further discussion of the methodology used in determining the allowance for credit losses.

Our business and operations make extensive use of quantitative models, estimates and assumptions. If our design, implementation or use of models is flawed or if actual results differ from our estimates or assumptions, our results of operations and financial condition could be materially and adversely affected.

We use quantitative models, estimates and assumptions to price products and services, measure risk, estimate asset and liability values, assess liquidity, manage our balance sheet, and otherwise conduct our business and operations. If the design, implementation, or use of any of these models is flawed or if actual results different from our estimates or assumptions, it may adversely affect our results of operations and financial condition.  In addition, to the extent that any inaccurate model outputs are used in reports to regulatory agencies or the public, we could be subjected to supervisory actions, litigation, and other proceedings that may adversely affect our business, results of operations and financial condition.

Assumptions and estimates often involve matters that require the exercise of management’s judgment, are inherently difficult to predict and are beyond our control (for example, macro-economic conditions).  In addition, theysuch assumptions and estimates often involve complex interactions between a number of dependent and independent variables, factors, and other assumptions. As a result, our actual experience may differ materially from these estimates and assumptions. A material difference between our estimates and assumptions and our actual experience may adversely affect our results of operations and financial condition.

Fluctuations in the valuation of investment securities or significant fluctuations in investment market prices could negatively affect our Net financing revenues and results of operations.

Investment market prices, in general, are subject to fluctuation. Consequently,fluctuation, which may result from perceived changes in the underlying characteristics of the investment, the relative price of alternative investments, geopolitical conditions, or general market conditions.  Negative fluctuations in the fair value of equity investments and credit losses on available-for-sale debt securities may adversely affect our Net financing revenues and results of operations. Additionally, the amount realized in the subsequent sale of an investment may significantly differ from the reported market value and could negatively affect our Net financing revenues and other revenues.  Additionally, negative fluctuations in the value of available-for-sale securities could result in unrealized losses recorded in Other comprehensive loss or in other-than-temporary impairment within our results of operations. Fluctuation in the market price of a security may result from perceived changes in the underlying economic characteristics of the investment, the relative price of alternative investments, geopolitical conditions, or general market conditions. A material fluctuation in valuation or market prices of investments may adversely affect our Net financing revenues and results of operations.

Changes in accounting standards issued by the Financial Accounting Standards Board (“FASB”) could adversely affect our results of operations and financial condition.

Our accounting and financial reporting policies conform to accounting principles generally accepted in the U.S., which are periodically revised and/or expanded. The application of accounting principles is also subject to varying interpretations over time. Accordingly, we are required to adopt new or revised accounting standards or comply with revised interpretations that are issued from time to time by various parties, including accounting standard setters and those who interpret the standards, such as the FASB and the SEC and our independent registered public accounting firm. The FASB has recently proposed new financial accounting standards that may result in significant changes that could adversely affect our results of operations and financial condition.  

Refer to Note 1 – Summary of Significant Accounting Policies of the Notes to the Consolidated Financial Statements for further discussion of these new accounting standards, including the potential impact to TMCC’s consolidated financial statements.  

A decrease in the residual values of our off-lease vehicles and a higher number of returned lease assets could negatively affect our results of operations and financial condition.

We are exposed to residual value risk on the disposition of leased vehicles if sales proceeds realized upon the sale of returned lease assets are not sufficient to cover the residual value that was estimated at lease inception and if the number of returned lease assets is higher than anticipated.  To the extent the estimated end-of-term market value of a leased vehicle is lower than the residual value established at lease inception, the residual value of the leased vehicle is adjusted downward resulting in additional depreciation expense over the term of the lease contract so that the carrying value at lease-end will approximate the estimated end-of-term market value.  Among other factors, local, regional and national economic conditions, new vehicle pricing, new vehicle incentive programs, new vehicle sales, the actual or perceived quality, safety or reliability of our vehicles, future plans for new Toyota and Lexus product introductions, competitive actions and behavior, product attributes of popular vehicles, the mix of used vehicle supply, the level of current used vehicle values and inventory levels, and fuel prices heavily influence used vehicle values and thus the actual residual value of off-lease vehicles.  In addition, disruptions or delays in the used vehicle auction market resulting from the inability to transport off-lease vehicles to physical auctions or the temporary closure of physical auctions as a result of government mandated stay-at-home orders have caused an increase in used vehicle inventories that has caused a decline in used vehicle values and actual residual values, which may worsen if the COVID-19 pandemic continues. Differences between the actual residual values realized on leased vehicles and our estimates of such values at lease inception could have a negative impact on our results of operations and financial condition, due to the impact of higher-than-anticipated Depreciation on operating leases recorded in our Consolidated Statements of Income.  Actual return volumes may be higher than expected which can be impacted by higher contractual lease-end residual values relative to market values, a higher market supply of certain models of used vehicles, new vehicle incentive programs, and general economic conditions.   The return of a higher number of leased assetsvehicles could also impact the amount of depreciation expense recorded in our Consolidated Statements of Income, which could adversely affect our results of operations and financial condition.

Refer to Item 7. “Management’sManagement’s Discussion and Analysis of Financial Condition and Results of Operations, – Financial“Financial Condition – Residual Value Risk”, “– Financial“Financial Condition – Disposition of Off-Lease Vehicles” and “– Financial“Financial Condition – Depreciation on Operating Leases” for further discussion of current lease trends.

We are exposed to customer and dealer credit risk, which could negatively affect our results of operations and financial condition.

Credit risk is the risk of loss arising from the failure of a customer or dealer to meet the terms of any retail, lease or dealer financing contract with us or otherwise fail to perform as agreed.  An increase in credit risk would increase our provision for credit losses, which would have a negative impact on our results of operations and financial condition. There can be no assurance that our monitoring of credit risk and our efforts to mitigate credit risk are or will be sufficient to prevent an adverse effect on our results of operations and financial condition.

The level of credit risk in our consumer portfolio is influenced primarily by two factors: the total number of contracts that experience default (“default frequency”) and the amount of loss per occurrence (“loss severity”), which in turn are influenced by various economic factors, the used vehicle market, purchase quality mix, contract term length, and operational changes.  The used vehicle market is impacted by the supply of, and demand for, used vehicles, interest rates, inflation, the level of manufacturer incentives on new vehicles,vehicle incentive programs, the manufacturer’s actual or perceived reputation for quality, safety, and reliability, and the general economic outlook.

The level of credit risk in our dealer portfolio is influenced primarily by the financial strength of dealers within our portfolio, dealer concentration, collateral quality, and other economic factors.  The financial strength of dealers within our portfolio is influenced by general macroeconomic conditions, the overall demand for new and used vehicles, and the financial condition of automotive manufacturers, among other factors.  

Economic slowdown and recession in the U.S., natural disasters, health epidemics, and other factors increase the risk that a customer or dealer may not meet the terms of a retail, lease or dealer financing contract with us or may otherwise fail to perform as agreed.  A weak economic environment evidenced by, among other things, unemployment, underemployment, and consumer bankruptcy filings, may affect some of our customers’ and dealers’ ability to make their scheduled payments.

Our results of operations, financial condition and cash flows may be adversely affected by changes in interest rates, foreign currency exchange rates and market prices.

Market risk is the risk that changes in interest rates and foreign currency exchange rates cause volatility in our results of operations, financial condition and cash flows.  An increase in interest rates could have an adverse effect on our business, financial condition and results of operations by increasing our cost of capital and the rates we charge to our customers and dealers, which could, in turn, decrease our financing volumes and market share, thereby resulting in a decline in our competitive position.  We use various derivative instruments to manage our market risk.  However, changes in interest rates, foreign currency exchange rates and market prices cannot always be predicted or hedged.  In July 2017, the U.K. Financial Conduct Authority, which regulates the London Inter-bank Offered Rate (“LIBOR”), announced that it intends to stop compelling banks to submit rates for the calculation of LIBOR after calendar year 2021.  It is not possible to predict whether LIBOR will cease to exist after calendar year 2021, whether additional reforms to LIBOR may be enacted, or whether the Secured Overnight Financing Rate (“SOFR”) or other alternative reference rates will gain market acceptance, and any of these outcomes could increase our interest rate risk related to our dealer financing activities, derivative contracts, secured and unsecured debt, and investment securities currently tied to LIBOR.  Changes in interest rates or foreign currency exchange rates could affect our interest expense and the value of our derivatives, which could result in volatility in our results of operations, financial condition, and cash flows.

A failure or interruption in our operations could adversely affect our results of operations and financial condition.

Operational risk is the risk of loss resulting from, among other factors, inadequate or failed processes, systems or internal controls, theft, fraud or natural disasters.  Operational risk can occur in many forms including, but not limited to, errors, business interruptions, failure of controls, failure of systems or other technology, deficiencies in our insurance risk management program, inappropriate behavior or misconduct by our employees or those contracted to perform services for us, and vendors that do not perform in accordance with their contractual agreements.  We have established business recovery plans to address interruptions in our operations, but we can give no assurance that these plans will be adequate to remediate all events that we may face.  A catastrophic event that results in the destruction or disruption of any of our critical business or information technology systems could harm our ability to conduct normal business operations.  These events can potentially result in financial losses or other damage to us, including damage to our reputation.

We rely on a framework of internal controls designed to provide a sound and well-controlled operating environment.  Due to the complexity of our business and the challenges inherent in implementing control structures across large organizations, control issues could be identified in the future that could have a material effect on our operations.

We moved our corporate headquarters from Torrance, California to Plano, Texas as part of TMC’s consolidation of its three North American headquarters for manufacturing, sales and marketing, and finance operations to a single new headquarters facility. The relocation of our headquarters has not caused a change in our corporate or leadership structure.  However, our future success depends on our ability to retain existing, and attract, hire and integrate new key personnel and other necessary employees at our new corporate headquarters.  Any failure to do so could adversely affect our business, results of operations and financial condition.

A failure or interruption of our information systems could adversely affect our business, results of operations and financial condition.

We rely on internal and third party information and technological systems to manage our operations, which creates meaningful operational risk for us.  Any failure or interruption of our information systems or the third party information systems on which we rely as a result of inadequate or failed processes or systems, human errors, employee misconduct, catastrophic events, external or internal security breaches, acts of vandalism, computer viruses, malware, ransomware, misplaced or lost data, or other events could disrupt our normal operating procedures, damage our reputation and have an adverse effect on our business, results of operations and financial condition.

In addition, we periodically upgrade or replace our existing transaction systems, which could have a significant impact on our ability to conduct our core business operations and increase our risk of loss resulting from disruptions of normal operating processes and procedures that may occur during and after the implementation of new systems.  For example, we are in the process of implementing a new core servicing system to replace our legacy core servicing system, which includes building a new enterprise integration platform that also accommodates downstream systems.  We are also planning to implement a standardized enterprise resource planning system for our finance and accounting functions which will integrate legacy systems and provide enhanced functionality.  The development and implementation of these new systems and any future upgrades related thereto may require significant expenditures and divert management’s attention and other resources from our core business operations.  There are no assurances that these new systems will provide us with the anticipated benefits and efficiencies.  There can also be no assurance that the time and resources our management will need to devote to implementation and upgrades, potential delays in the implementation or upgrade or any resulting service interruptions, or any impact on the reliability of our data from any upgrade of our legacy system, will not have a material adverse effect on our business, results of operations and financial condition.

A security breach or a cyber-attack could adversely affect our business, results of operations and financial condition.

We collect and store certain personal and financial information from customers, employees, and other third parties.  Security breaches or cyber-attacks involving our systems or facilities, or the systems or facilities of our service providers, could expose us to a risk of loss of personally identifiable information of customers, employees and third parties or other proprietary or competitively sensitive information, business interruptions, regulatory scrutiny, actions and penalties, litigation, reputational harm, a loss of confidence, and other financial and non-financial costs, all of which could potentially have an adverse impact on our future business with current and potential customers, results of operations and financial condition.

We rely on encryption and other information security technologies licensed from third parties to provide security controls necessary to help in securing online transmission of confidential information pertaining to customers, employees and other aspects of our business.  Advances in information system capabilities, new discoveries in the field of cryptography or other events or developments may result in a compromise or breach of the technology that we use to protect sensitive data.  A party who is able to circumvent our security measures by methods such as hacking, fraud, trickery or other forms of deception could misappropriate proprietary information or cause interruption in our operations.  We may be required to expend capital and other resources to protect against such security breaches or cyber-attacks or to remediate problems caused by such breaches or attacks.  Our security measures are designed to protect against security breaches and cyber-attacks, but our failure to prevent such security breaches and cyber-attacks could subject us to liability, decrease our profitability and damage our reputation.  Even if a failure of, or interruption in, our systems or facilities is timely resolved or an attempted cyber incident or other security breach is successfully avoided or thwarted, it may require us to expend substantial resources or to take actions that could adversely affect customer satisfaction or behavior and expose us to reputational harm.

We could also be subjected to cyber-attacks that could result in slow performance and loss or temporary unavailability of our information systems.  Information security risks have increased because of new technologies, the use of the internet and telecommunications technologies (including mobile devices) to conduct financial and other business transactions, and the increased sophistication and activities of organized crime, perpetrators of fraud, hackers, terrorists, and others.  We may not be able to anticipate or implement effective preventative measures against all security breaches of these types, especially because the techniques used change frequently and because attacks can originate from a wide variety of sources.  The occurrence of any of these events could have a material adverse effect on our business, results of operations and financial condition.

The failure or commercial soundness of our counterparties and other financial institutions may have an effect on our liquidity, results of operations or financial condition.

We have exposure to many different financial institutions, and we routinely execute transactions with counterparties in the financial industry.  Our debt, derivative and investment transactions, and our ability to borrow under committed and uncommitted credit facilities, could be adversely affected by the actions and commercial soundness of other financial institutions.  We cannot guarantee that our ability to borrow under committed and uncommitted credit facilities will continue to be available on reasonable terms or at all.  Deterioration of social, political, labor, or economic conditions in a specific country or region may also adversely affect the ability of financial institutions, including our derivative counterparties and lenders, to perform their contractual obligations.  Financial institutions are interrelated as a result of trading, clearing, lending and other relationships, and as a result, financial and political difficulties in one country or region may adversely affect financial institutions in other jurisdictions, including those with which we have relationships.  The failure of any financial institutions and other counterparties to which we have exposure, directly or indirectly, to perform their contractual obligations, and any losses resulting from that failure, may materially and adversely affect our liquidity, results of operations or financial condition.

Our insurance operations could suffer losses if our reserves are insufficient to absorb actual losses.

Our insurance operations are subject to the risk of loss if our reserves for unearned premium and contract revenues on agreements in force are not sufficient.  Using historical loss experience as a basis for recognizing revenue over the term of the contract or policy may result in the timing of revenue recognition varying materially from the actual loss development.  Our insurance operations are also subject to the risk of loss if our reserves for reported losses, losses incurred but not reported, and loss adjustment expenses are not sufficient.  Because we use estimates in establishing reserves, actual losses may vary from amounts established in earlier periods as a result of changes in frequency and severity.

We are exposed to risk transfer credit risk which could negatively impact our insurance operations.

Risk transfer credit risk is the risk that a reinsurer or other company assuming liabilities relating to our insurance operations will be unable to meet its obligations under the terms of our agreement with them.  Such failure could result in losses to our insurance operations.

Regulatory, Legal and Other Risks

Changes in accounting standards issued by the Financial Accounting Standards Board (“FASB”) could adversely affect our results of operations and financial condition.

Our accounting and financial reporting policies conform to accounting principles generally accepted in the U.S., which are periodically revised and/or expanded. The application of accounting principles is also subject to varying interpretations over time. Accordingly, we are required to adopt new or revised accounting standards or comply with revised interpretations that are issued from time to time by various parties, including accounting standard setters and those who interpret the standards, such as the FASB and the SEC and our independent registered public accounting firm. The FASB has proposed new financial accounting standards that may result in significant changes that could adversely affect our results of operations and financial condition.  

Refer to Note 1 – Basis of Presentation and Significant Accounting Policies of the Notes to the Consolidated Financial Statements for further discussion of these new accounting standards, including the potential impact to TMCC’s consolidated financial statements.  

A failure or interruption of our information systems could adversely affect our business, results of operations and financial condition.

We rely on internal and third party information and technological systems to manage our operations, which creates meaningful operational risk for us.  Any failure or interruption of our information systems or the third party information systems on which we rely as a result of inadequate or failed processes or systems, human errors, employee misconduct, catastrophic events, external or internal security breaches, acts of vandalism, computer viruses, malware, ransomware, misplaced or lost data, or other events could disrupt our normal operating procedures, damage our reputation and have an adverse effect on our business, results of operations and financial condition.

In addition, we periodically upgrade or replace our existing transaction systems, which could have a significant impact on our ability to conduct our core business operations and increase our risk of loss resulting from disruptions of normal operating processes and procedures that may occur during and after the implementation of new systems.  For example, the development and implementation of these new systems and any future upgrades related thereto may require significant expenditures and divert management’s attention and other resources from our core business operations.  There are no assurances that these new systems will provide us with the anticipated benefits and efficiencies.  There can also be no assurance that the time and resources our management will need to devote to implementation and upgrades, potential delays in the implementation or upgrade or any resulting service interruptions, or any impact on the reliability of our data from any upgrade of our legacy system, will not have a material adverse effect on our business, results of operations and financial condition.

A security breach or a cyber-attack could adversely affect our business, results of operations and financial condition.

We collect and store certain personal and financial information from customers, employees, and other third parties.  Security breaches or cyber-attacks involving our systems or facilities, or the systems or facilities of our service providers, could expose us to a risk of loss of personally identifiable information of customers, employees and third parties or other confidential, proprietary or competitively sensitive information, business interruptions, regulatory scrutiny, actions and penalties, litigation, reputational harm, a loss of confidence, and other financial and non-financial costs, all of which could potentially have an adverse impact on our future business with current and potential customers, results of operations and financial condition.

We rely on encryption and other information security technologies licensed from third parties to provide security controls necessary to help in securing online transmission of confidential information pertaining to customers, employees and other aspects of our business.  Advances in information system capabilities, new discoveries in the field of cryptography or other events or developments may result in a compromise or breach of the technology that we use to protect sensitive data.  A party who is able to circumvent our security measures by methods such as hacking, fraud, trickery or other forms of deception could misappropriate proprietary information or cause interruption in our operations.  We may be required to expend capital and other resources to protect against such security breaches or cyber-attacks or to remediate problems caused by such breaches or attacks.  Our security measures are designed to protect against security breaches and cyber-attacks, but our failure to prevent such security breaches and cyber-attacks could subject us to liability, decrease our profitability and damage our reputation.  Even if a failure of, or interruption in, our systems or facilities is resolved timely or an attempted cyber incident or other security breach is successfully avoided or thwarted, it may require us to expend substantial resources or to take actions that could adversely affect customer satisfaction or behavior and expose us to reputational harm.

We could also be subjected to cyber-attacks that could result in slow performance and loss or temporary unavailability of our information systems.  Information security risks have increased because of new technologies, the use of the internet and telecommunications technologies (including mobile devices) to conduct financial and other business transactions, and the increased sophistication and activities of organized crime, perpetrators of fraud, hackers, terrorists, and others.  We may not be able to anticipate or implement effective preventative measures against all security breaches of these types, especially because the techniques used change frequently and because attacks can originate from a wide variety of sources.  The occurrence of any of these events could have a material adverse effect on our business, results of operations and financial condition.

Our enterprise data practices, including the collection, use, sharing, disposal and security of personally identifiable and financial information of our customers and employees are subject to increasingly complex, restrictive, and punitive laws and regulations which could adversely affect our business, results of operations and financial condition.

Under these laws and regulations, the failure to maintain compliant data practices could result in consumer complaints, lawsuits and regulatory inquiry, resulting in civil or criminal penalties, as well as brand impact or other harm to our business.  In addition, increased consumer sensitivity to real or perceived failures in maintaining acceptable data practices could damage our reputation and deter current and potential customers from using our products and services.  For example, recent, well-publicized allegations involving the misuse or inappropriate sharing of personal information have led to expanded governmental scrutiny of practices relating to the safeguarding of personal information and the use or sharing of personal data by companies in the U.S. and other countries.  That scrutiny has in some cases resulted in, and could in the future lead to, the adoption of stricter laws and regulations relating to the use and sharing of personal information.  For example, in California a new data protection regime has taken effect, that grants consumers broad new rights relating to access to, deletion of, and sharing of personal information that is collected by businesses and requiring regulated entities to establish measures to identify, manage, secure, track, produce and delete personal information. In some jurisdictions, these laws and regulations provide a private right of action that would allow customers to bring suit directly against us for certain violations of these laws and regulations.  These types of laws and regulations could prohibit or significantly restrict financial services providers such as TMCC from sharing information among affiliates or with third parties such as vendors, and thereby increase compliance costs, or could restrict TMCC’s use of personal data when developing or offering products or services to customers.  These restrictions could inhibit TMCC’s development or marketing of certain products or services, or increase the costs of offering them to customers.  Because many of these laws and regulations are new, there is little clarity as to their interpretation, as well as a lack of precedent for the scope of enforcement.  The cost of compliance with these laws and regulations will be high and is likely to increase in the future.  Any failure or perceived failure to comply with applicable privacy or data protection laws and regulations could result in requirements to modify or cease certain operations or practices, significant liabilities or fines, penalties or other sanctions.

The regulatory environment in which we operate could have a material adverse effect on our business and results of operations.

Regulatory risk includes risk arising from failure or alleged failure to comply with applicable regulatory requirements and risk of liability and other costs imposed under various laws and regulations, including changes in applicable law, regulation and regulatory guidance.

Consumer Finance Regulation

As a provider of finance and insurance products, we operate in a highly regulated environment. We are subject to licensing requirements at the state level, and to laws regulation, examination and investigation from time to timeregulations, as well as periodic examinations and investigations at the state and federal levels. Compliance with applicable law is costly and can affect our results of operations.  Compliance requires forms, processes, procedures, controls and the infrastructure to support these requirements.  Compliance may create operational constraints and place limits on pricing, as the laws and regulations in the financial services industry are designed primarily for the protection of consumers.  Changes in regulationlaws and regulations could restrict our ability to operate our business as currently operated, could impose substantial additional costs or require us to implement new processes, which could adversely affect our business, prospects, financial performance or financial condition.  The failure to comply with applicable laws and regulations could result in significant statutory civil and criminal fines, penalties, monetary damages, attorneys’attorney or legal fees and costs, restrictions on our ability to operate our business, possible revocation of licenses and damage to our reputation, brand and valued customer relationships. Any such costs, restrictions, revocations or damage could adversely affect our business, prospects, results of operations or financial condition.

Our principal consumer finance regulator at the federal level is the CFPB, which has broad regulatory, supervisory and enforcement authority over us.The CFPB’s supervisory authority allows it, among other things, to conduct comprehensive and rigorous examinations to assess our compliance with consumer financial protection laws, which could result in enforcement actions, regulatory fines and mandated changes to our business products, policies and procedures.

The CFPB’s rulemaking authority includes the authority to promulgate rules regarding, among other practices, debt collection practices that would apply to third-party collectors and first-party collectors, such as ourselves, and rules regarding consumer credit reporting practices.  The timing and impact of these rules on our business remain uncertain.  In addition, the CFPB has focused on the area of auto finance, particularly with respect to indirect financing arrangements, dealer compensation and fair lending compliance, and questioned the value and increased scrutiny of the marketing and sale of certain ancillary or add-on products, including products similar to those that we finance or sell through TMIS.  Regulators have questioned such products’ value and how such products are marketed and sold.

The CFPB and FTC have become more active in investigatingmay investigate the products, services and operations of credit providers, including banks and other finance companies engaged in auto finance activities,activities.  As a result of such investigations, the CFPB and FTC have announced various enforcement actions against lenders in the past few years involving significant penalties, consent orders, cease and desist orders and similar remedies that, if applicable to us andor the products, services and operations we offer, may require us to cease or alter certain business practices, which could have a material adverse effect on our results of operations, financial condition, and liquidity.  CFPB supervisionSupervision and enforcement actions,investigations by these agencies, if any, may result in monetary penalties, increase our compliance costs, require changes in our business practices, affect our competitiveness, impair our profitability, harm our reputation or otherwise adversely affect our business.

Refer to Item 1. “Business – RegulatoryBusiness, “Regulatory Environment” for further discussion of the CFPB’s authority and activities.

At the state level, state regulators are taking a more stringent approach to supervising and regulating financial products and services subject to their jurisdiction. We expect to continue to face greater supervisory scrutiny and enhanced supervisory requirements for the foreseeable future.  For example, on January 28, 2015, we received a request for documents and information from the New York State Department of Financial Services relating to our lending practices (including fair lending), and on April 6, 2016, we received a request for documents and information pursuant to a civil investigative demand from the Commonwealth of Massachusetts Office of the Attorney General relating to our financing of GAP insurance products on retail contracts.  We provided the requested documents and information, but have not had further communication with either agency regarding their respective reviews.

Other Federal Regulation

The Dodd-Frank Act also established the FSOC, which is mandated with designating SIFIs.  If we or one of our affiliates were designated as a SIFI, we could experience increased compliance costs, the need to change our business practices, impairments to our profitability and competitiveness and other adverse effects on our business.

Under the Volcker Rule companies affiliated with U.S. insured depository institutions are generally prohibited from engaging in “proprietary trading” and certain transactions with certain privately offered funds.  The activities prohibited by the Volcker Rule are not core activities for us. Accordingly, we do not believe the Volcker Rule and its implementing regulations are likely to have a material effect on our business or operations. In the future, however, the federal financial regulatory agencies charged with implementing the Volcker Rule could change their approach to administering, enforcing or interpreting the rule, which could negatively affect us and potentially require us to limit or change our activities or operations.

The Dodd-Frank Act amended the CEA to establish a new framework for the regulation of certain OTC derivatives referred to as swaps.  The OTC derivatives provisions of the CEA, as amended by the Dodd-Frank Act, impose clearing, trading and margin requirements on certain contracts.  At present, we qualify for exceptions from these requirements for the swaps that we enter into to hedge our commercial risks.  However, if we were to fail tono longer qualify for such exceptions, we could become subject to some or all of these requirements, which would increase our cost of entering into and maintaining such hedging positions.  Moreover, the application of the clearing, trading and margin requirements, and other related regulations, to our dealer counterparties may change the cost and availability of the OTC derivatives that we use for hedging.  

The full impact of the OTC derivatives provisions of the Dodd-Frank Act and related regulatory requirements upon our business will not be known until the regulations are fully implemented and the market for derivatives contracts has adjusted. The Dodd-Frank Act and regulations could significantly increase the cost of OTC derivative contracts, materially alter the terms of OTC derivative contracts, reduce the availability of OTC derivatives to protect against risks we encounter, or reduce our ability to monetize or restructure our existing OTC derivative contracts. If we reduce our use of OTC derivatives as a result of the Dodd-Frank Act and resulting regulations, our results of operations may become more volatile and our cash flows may be less predictable, which could adversely affect our ability to plan for and fund capital expenditures.

The Trump Administration has indicated in public statements that the Dodd-Frank Act will be under scrutiny and that some of its provisions and the rules promulgated thereunder may be revised, repealed or amended. Any such changes, including their nature and impact, cannot yet be determined with any degree of certainty.

Refer to Item 1. “Business – RegulatoryBusiness, “Regulatory Environment” for additional information on our regulatory environment.

Adverse economic conditions or changes in state laws in states in which we have customer concentrations may negatively affect our results of operations and financial condition.

We are exposed to geographic customer concentration risk in our retail, lease, dealer, and insurance products in certain states.  Factors adversely affecting the economies and applicable laws in the states where we have concentration risk could have an adverse effect on our results of operations and financial condition.

Refer to Note 1 – SummaryBasis of Presentation and Significant Accounting Policies of the Notes to Consolidated Financial Statements for additional information and disclosure about customer concentrations in certain states.

ITEM 1B. UNRESOLVED STAFF COMMENTS

There are no unresolved SEC staff comments to report.

ITEM 2. PROPERTIES

Our headquarters operations are located in Plano, Texas, and our facilities are leased from TMNA.

FieldAdditional operations for both finance and insurance are located in three CSCs three regional management offices, and 29 DSSOs in cities throughout the U.S.  Two of the DSSOs share premises with the regional CSCs.  All three of the regional management offices share premises with DSSO offices.field operation locations.  The Central region CSC is located in Cedar Rapids, Iowa, and is leased from TMNA.  The Western region CSC is located in Chandler, Arizona.  The Eastern region CSC is located in Owings Mills, Maryland.  To better serve our dealer partners, we are currently in the process of consolidating field operation locations, which are located in various cities throughout the U.S., into three new regional dealer service centers.  The Central DSC is located in Plano, Texas.  The Western DSC will be located in Chandler, Arizona.  The Eastern DSC will be located in Alpharetta, Georgia.  Our dealer lending function is centralized at the Central DSC.  We also have a sales and operations office in Puerto Rico.  All premises are occupied under lease.

We believe that our properties are suitable to meet the current requirements of our business.Refer to Item 1.  Business, “General” for further discussion of the field operations restructuring.

ITEM 3. LEGAL PROCEEDINGS

Various legal actions, governmental proceedings and other claims are pending or may be instituted or asserted in the future against us with respect to matters arising in the ordinary course of business.  Certain of these actions are or purport to be class action suits, seeking sizeable damages and/or changes in our business operations, policies and practices.  In addition, we are subject to governmental and regulatory examinations, information-gathering requests, and investigations from time to time at the state and federal levels.  It is inherently difficult to predict the course of such legal actions and governmental inquiries.  Certain of these actions are similar to suits that have been filed against other financial institutions and captive finance companies.  We perform periodic reviews of pending claims and actions to determine the probability of adverse verdicts and resulting amounts of liability.  We establish accruals for legal claims when payments associated with the claims become probable and the costs can be reasonably estimated.  When we are able, we also determine estimates of reasonably possibleprobable loss or range of loss, whether in excess of any related accrued liability or where there is no accrued liability. Refer to Note 149 – Commitments and Contingencies of the Notes to Consolidated Financial Statements. Given the inherent uncertainty associated with legal matters, the actual costs of resolving legal claims and associated costs of defense may be substantially higher or lower than the amounts for which accruals have been established.  Based on available information and established accruals, we do not believe it is reasonably possibleprobable that the results of these proceedings, either individually or in the aggregate, will have a material adverse effect on our financial condition or results of operations.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

TMCC is a wholly-owned subsidiary of TFSIC, and accordingly, all shares of TMCC’s stock are owned by TFSIC.  There is no market for TMCC's stock.

No dividends were declared or paid in fiscal 2018, 2017, and 2016.  

ITEM 6. SELECTED FINANCIAL DATA

No dividends were declared in fiscal 2020.  In fiscal 2019, TMCC recorded a dividend to TFSIC related to an asset purchase agreement in the amount of $10 million, which was recorded net of tax.  Payment related to the asset purchase agreement was made in fiscal 2020.  No dividends were declared or paid during fiscal 2018, 2017, and 2016.  Our Board of Directors declared and paid cash dividends of $435 million and $665 million to TFSIC during fiscal 2015 and 2014, respectively.  

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Statement Regarding Forward-Looking Information

Certain statements contained in this Form 10-K or incorporated by reference herein are “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.  These statements are based on current expectations and currently available information.  However, since these statements are based on factors that involve risks and uncertainties, our performance and results may differ materially from those described or implied by such forward-looking statements.  Words such as “believe,” “anticipate,” “expect,” “estimate,” “project,” “should,” “intend,” “will,” “may” or words or phrases of similar meaning are intended to identify forward-looking statements.  We caution that the forward-looking statements involve known and unknown risks, uncertainties and other important factors such as the following that may cause actual results to differ materially from those stated:

Forward-looking statements speak only as of the date they are made.  We will not update the forward-looking statements to reflect actual results or changes in the factors affecting the forward-looking statements.

OVERVIEW

Key Performance Indicators and Factors Affecting Our Business

In our finance operations, we generate revenue, income, and cash flows by providing retail, lease, and dealer financing to dealers and their customers.  We measure the performance of our finance operations using the following metrics: financing volume, market share, financing margins, operating and administrative expense, residual value and credit loss metrics.

In our insurance operations, we generate revenue primarily through marketing, underwriting, and providing claims administration for products that cover certain risks of dealers and their customers.  We measure the performance of our insurance operations using the following metrics: issued agreement volume, average number of agreements in force, loss metrics and investment income.

Our financial results are affected by a variety of economic and industry factors including, but not limited to, new and used vehicle markets, Toyota and Lexus sales volume, new vehicle incentive programs, consumer behavior, employment levels, our ability to respond to changes in interest rates with respect to both contract pricing and funding, the actual or perceived quality, safety or reliability of Toyota and Lexus vehicles, the financial health of the dealers we finance, and competitive pressure.  Our financial results may also be affected by the regulatory environment in which we operate, including as a result of new legislation or changes in regulation and any compliance costs or changes we may be required to make to our business practices.  All of these factors can influence consumer contract and dealer financing volume, the number of consumer contracts and dealers that default and the loss per occurrence, our inability to realize originally estimated contractual residual values on leased vehicles, the volume and performance of our insurance products,operations, and our gross margins on consumer and dealer financing volume.  Changes in the volume of vehicle sales, sales of our insurance and vehicle and payment protection products, or the level of coverage purchased by affiliatesinsurance losses could materially and adversely impact our insurance operations.  Additionally, our funding programs and related costs are influenced by changes in the global capital markets, prevailing interest rates, and our credit ratings and those of our parent companies, which may affect our ability to obtain cost effective funding to support earning asset growth.

Our primary competitors are other financial institutions including national and regional commercial banks, credit unions, savings and loan associations, independent insurance service contract providers, online banks, finance companies and, to a lesser extent, other automobile manufacturers’ affiliated finance companies that actively seek to purchase consumer contracts through Toyota and Lexus dealers.  We strive to achieve the following:

Exceptional Customer Service:  Our relationship with Toyota and Lexus dealers and their customers offer us a competitive advantage.  We seek to leverage this opportunity by providing exceptional service to the dealers and their customers.  Through our DSSO network,field operations, we work closely with the dealers to improve the quality of service we provide to them.  We also focus on assisting the dealers with the quality of their customer service operations to enhance customer loyalty for the dealers and the Toyota and Lexus brands.  By providing consistent and reliable support, training, and resources to our dealer network, we continue to develop and improve our dealer relationships.  In addition to marketing programs targeted toward customer retention, we work closely with TMNA and other third party distributors to offer special retail, lease, dealer financing, and insurance programs.  We also focus on providing a positive customer experience to existing retail, lease, and insurance customers through our CSCs.

Risk-Based Origination and Pricing:  We price and structure our retail and lease contracts to compensate us for the credit risk we assume.  The objective of this strategy is to maximize operating results and better match contract rates across a broad range of risk levels.  To achieve this objective, we evaluate our existing portfolio for key opportunities to expand volume in targeted markets.  We deliver timely strategic information to the dealers to assist them in benefiting from market opportunities.  We continuously strive to refine our strategy and methodology for risk-based pricing.

Liquidity:  Our liquidity strategy is to maintain the capacity to fund assets and repay liabilities in a timely and cost-effective manner even in adverse market conditions.  This capacity is primarily driven by our ability to raise funds in the global capital markets and through loans, credit facilities, and other transactions, as well as our ability to generate liquidity from our earnings assets.  Our pursuit of this strategy has led us to develop a diversified borrowing base that is distributed across a variety of markets, geographies, investors, and financing structures, among other factors.

Fiscal 20182020 Operating Environment

During the first three quarters of fiscal 2018,2020, the U.S. economy expanded, the unemployment rate was at historically low levels, and consumer confidence was at historically high levels; however, uncertainties surrounding geopolitical events, trade policy, the future path of U.S. monetary policy, and caution by global central banks continued to expand as consumer confidence increased,impact the housing market remained strong and unemployment rates remained low.  However, higher interest rates and elevated consumer debt levels could result in an increase in our delinquencies and credit losses in the future.  The Tax Cuts and Jobs Act of 2017 (“TCJA”) was enacted on December 22, 2017, which reduced our federal statutory income tax rate and favorably impacted our results of operations.  The TCJA could have a positive impact on the U.S. economy going forward.outlook for future economic growth.

Industry-wide vehicle sales in the U.S. decreased 1 percent during fiscal 2018 as compared to fiscal 2017 despite elevated sales incentives.  Vehicle sales by TMNA increased 2 percent in fiscal 2018 compared to fiscal 2017 primarily due to increased consumer demand for Toyota vehicles as compared to recent years.  Financing volume decreased 3 percent and our overall market share decreased 1 percentage point for fiscal 2018 compared to fiscal 2017, primarily due to competition from other financial institutions particularly for non-subvened lease contracts.

UsedAverage used vehicle values for Toyota and Lexus vehicles remained relatively consistent for the majority of fiscal 2020 compared to fiscal 2019; and industry-wide vehicle sales and sales incentives in the U.S. were relatively consistent infor the majority of fiscal 20182020 as compared to fiscal 2017.  Declines in used vehicle values resulting from increases in the supply of used vehicles, increases in new vehicle incentive programs and a larger lease portfolio resulting in higher future maturities could unfavorably impact return rates, residual values, depreciation expense and credit losses in the future.2019.

We continue to maintain broad global access to both domestic and international markets.  Conditions in the global capital markets were generally stable during the first three quarters of fiscal 2018.  2020, despite intermittent period of volatility caused by uncertainty regarding geopolitical events, trade policy, and the future path of U.S. monetary policy.

During the last quarter of fiscal 2018,2020, the global outbreak of COVID-19 and the introduction of extraordinary governmental measures intended to slow its spread, including quarantines, government-mandated actions, stay-at-home orders and other restrictions, severely curtailed economic activities.  These curtailments resulted in a global economic contraction that negatively impacted our business, and the business of our affiliate, TMNA, and our ultimate parent, TMC, in a number of ways, in the second half of March 2020 and adversely impacted our fourth quarter and fiscal 2020 results of operations.  Refer to “Recent Developments Related to COVID-19” below for further discussion of the impact of the COVID-19 pandemic on our business and results of operations.

Despite the economic downturn, which had a negative impact at the end of the fiscal year, and lower levels of subvention throughout the year, our financing volume increased 8 percent, and our market share increased approximately 4 percentage points for fiscal 2020 compared to fiscal 2019, as a result of TMNA and TMCC cash incentive programs and our other competitive rate programs offered throughout fiscal 2020.

Recent Developments Related to COVID-19

During the fourth quarter of fiscal 2020, the most notable COVID-19 pandemic impacts on our results of operations were a higher provision for credit losses and higher depreciation expense due to the sharp decline in economic conditions and the significant decline in used vehicle values at the end of March 2020.  This resulted from higher probable credit losses on our loan and lease portfolios and lower expected end-of-term market values for our investment in operating leases.  Continuation of higher credit losses for our loan and lease portfolios and lower expected end-of-term market values for our investment in operating leases is also expected to have an adverse effect on our future results of operations. Refer to Refer to Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, “Financial Condition” for a further discussion of the COVID-19 pandemic impact on the provision for credit losses and depreciation expense.

Increasing unemployment levels, lack of consumer credit availability, and reduction in household income during a period of economic contraction has affected some of our customers’ ability to make their scheduled payments.  We are offering payment relief options to our customers and dealers impacted by COVID-19.  Unlike the payment relief options offered for natural disasters, such as hurricanes, floods, tornadoes and wildfires, which were limited to the affected geographies, the COVID-19 payment relief options are being offered nationwide, and may not be successful in reducing future increases to our provision for credit losses.  The payment relief options we offered to customers and dealers included finance contract extensions, lease deferred payments, temporary interest expensedeferrals for dealer floorplan financing, and principal payment deferral options for dealer real estate and working capital loans.  Our payment relief programs currently allow existing customers to defer their loan or lease payments for up to 120 days and waive certain fees, but with interest continuing to accrue.  We may terminate, or modify the scope, duration and terms of, our COVID-19 payment relief programs at any time.  Accounts with payment extensions and deferrals under our COVID-19 relief programs are not considered past due.  From March 13, 2020 through May 31, 2020, we granted payment extensions and deferrals to approximately 13% of our retail customers and 11% of our lease customers.  For comparison, from March 13, 2019 through May 31, 2019, TMCC had granted payment extensions and deferrals for retail and lease customers who requested payment relief to approximately 1% of our retail customers and 0.5% of our lease customers.  The COVID-19 pandemic has increased our expected residual value losses and adversely affected our business, fourth quarter and fiscal 2020 results of operations, and may continue to do so if there is not a substantial recovery.  We also temporarily suspended outbound collection activities in states with state-wide stay-at-home orders and repossession activities nationwide for a period of time, but have since resumed outbound collection activities in nearly all states. Due to the duration of, and number of customers and dealers participating in, our payment relief programs, we expect that our future results of operations will also be adversely impacted.

While industry-wide vehicle sales and sales incentives in the U.S. were relatively consistent for the majority of fiscal 2020 as compared to fiscal 20172019 both experienced a significant decline at the end of our fiscal year as a result of increasing interest rates.the sharp decline in economic conditions caused by the COVID-19 pandemic.  Our business is substantially dependent on upon the sale of Toyota and Lexus vehicles, which declined significantly beginning in the second half of March 2020 and continued into May 2020 as dealers temporarily closed showrooms and adjusted their operations and consumers adjusted their behavior in response to restrictions designed to slow the spread of COVID-19 and an unprecedented increase in unemployment claims and a significant decline in consumer confidence and spending.  Consistent with the decline in Toyota and Lexus vehicle sales, we experienced significant declines of approximately 38% in financing volume and 45% in the number of insurance agreements issuances from April 1, 2020 through May 31, 2020 compared to April 1, 2019 through May 31, 2019.  We expect that these trends will continue to have an adverse effect on our results of operations.  To mitigate these trends, dealers have increased their utilization of online sales channels and we have partnered with TMNA to offer competitive incentive programs, including first payment deferred 90 days on select Toyota and Lexus models.  A sustained decline in vehicle sales, could have a material adverse effect on the sale of our financing and insurance products, dealer profitability and creditworthiness, and our future results of operations.  

During the fourth quarter of the fiscal year, capital markets experienced significant disruption and volatility as a result of the COVID-19 pandemic. While our ability to access the capital markets remains largely intact, our funding spreads have increased across both short-term and long-term markets and our long-term credit ratings have been downgraded or put on negative outlook and may be subject in the future to further actions or downgrades by credit rating agencies.  For liquidity purposes, we hold cash in excess of our immediate funding needs.  Subsequent to our fiscal year end, from April 1, 2020 through May 31, 2020 we raised an additional $15.3 billion through the public secured and unsecured capital markets and private term loan and asset-backed securitization credit markets, excluding commercial paper issuances.  As of May 31, 2020, we maintained excess funds of $22.1 billion.  As of May 31, 2020, we and our co-borrowers had $15.7 billion in committed, undrawn bank credit facilities and we had an additional $4.1 billion in stand-alone committed, undrawn bank credit facilities.  Future changes in interest rates in the U.S. and foreign markets could result in further volatility in our interest expense, which could affect our results of operations.  For additional information, refer to our Liquidity and Capital Resources section.

Nearly all of our workforce has been temporarily transitioned to a remote work arrangement to mitigate health risks.  Our remote work arrangements have been designed to allow for continued operation of all business-critical functions. The length of time we may be required to operate under these circumstances remains uncertain.  While we have not experienced material adverse disruptions to our internal operations, we continue to monitor for evolving risks and developments.  In addition, from March 23, 2020 to May 8, 2020, TMNA suspended production at all of its automobile and components plants in North America at various times due to the increasing social and economic impact of the COVID-19 pandemic and a significant decline in vehicle demand.  Although TMNA and many of its suppliers are resuming production, unexpected delays affecting the supply chain or logistics network could negatively impact dealer inventory levels, vehicle sales, the sale of our financing and insurance products, dealer profitability and creditworthiness, and our future results of operations.  

The extension of curtailed economic activities as a result of further outbreak of COVID-19, extended or additional government restrictions intended to slow the spread of the virus, or delayed consumer response once restrictions have been lifted could have further negative impact on used vehicle values, consumer economics, dealerships, and auction sites, which could have a material adverse impact on the future results of operations.  If the number of our customers and dealers experiencing hardship increases or it becomes necessary to further extend our payment relief options, it could have a material adverse effect on our business, financial condition and our future results of operations.

Although the duration and severity of the COVID-19 pandemic is uncertain, and its ultimate impact on our results of operations is difficult to predict, it could have material adverse effect on our business, financial condition and our future results of operations.

RESULTS OF OPERATIONS

Fiscal 20182020 Compared to Fiscal 20172019

Our consolidated net income was $3,410$913 million in fiscal 2018,2020, compared to $267$795 million in fiscal 2017.2019.  The increase in net income for fiscal 20182020 compared to fiscal 20172019 was primarily due to a $2,771 million increase in the benefit for income taxes attributable to the enactment of the TCJA, which reduced our federal statutory tax rate.  Refer to “Management’s Discussion and Analysis – Results of Operations – Provision for Income Taxes” and Note 13 – Income Taxes of the Notes to the Consolidated Financial Statements for further details.  In addition, our net income for fiscal 2018 compared to fiscal 2017 was also favorably impacted by a $671$389 million increase in total financing revenues, and a $181an $89 million decrease in provision for credit losses, partially offset by a $188 million increase in depreciation on operating leases, a $185$71 million decrease in realized gains, net on investments in marketable securities,provision for income taxes, and a $97$30 million increase in investment and other income, net, partially offset by a $218 million increase in provision for credit losses, a $176 million increase in operating and administrative expense, and a $87 million increase in interest expense.

Our overall capital position increased $3.4$0.9 billion, bringing total shareholder’s equity to $12.9$14.5 billion at March 31, 2018,2020, as compared to $9.5$13.6 billion at March 31, 2017.2019.  Our debt increased to $98.4$97.7 billion at March 31, 20182020 from $98.2$92.9 billion at March 31, 2017 as a result of funding our earning asset growth.2019.  Our debt-to-equity ratio decreased to 7.66.7 at March 31, 20182020 from 10.36.8 at March 31, 2017.  Our overall capital position and our debt-to-equity ratios were favorably impacted by the previously mentioned TCJA enactment.2019.

Fiscal 20172019 Compared to Fiscal 20162018

Our consolidated net income was $267$795 million in fiscal 2017,2019, compared to $932$3,410 million in fiscal 2016.  The2018.  The decrease in net income duringfor fiscal 20172019 compared to fiscal 2016,2018 was primarily due to the enactment of the Tax Cuts and Jobs Act of 2017 (“TCJA”), which resulted in a $939 million increaseone-time tax benefit of $2.9 billion in depreciation on operating leases, a $617 million increase in interest expense, a $141 million increase in provision for credit losses and a $116 million increase in operating and administrative expense. These decreases infiscal 2018.  Our net income were partially offsetfor fiscal 2019 compared to fiscal 2018 was favorably impacted by a $643$923 million increase in total financing revenues, primarily driven by an increase in operating lease revenues, a $438$132 million decrease in provision for income taxesdepreciation on operating leases, and a $220$35 million increase in realized gains,investment and other income, net, on investmentspartially offset by a $896 million increase in marketable securities.  Additionally, our results of operations for fiscal 2016 were higher due to a gain on the sale of our commercial finance business of $197 million.  As discussed in our Form 10-K for fiscal 2016, we sold our commercial finance business on October 1, 2015.interest expense.

Our overall capital position increased $0.1$0.7 billion, bringing total shareholder’s equity to $9.5$13.6 billion at March 31, 2017,2019, as compared to $9.4$12.9 billion at March 31, 2016.2018.  Our debt increaseddecreased to $98.2$92.9 billion at March 31, 20172019 from $93.6$98.4 billion at March 31, 2016 as2018.  As a result, of funding our earning asset growth.  Our debt-to-equity ratio increaseddecreased to 10.36.8 at March 31, 20172019 from 10.07.6 at March 31, 2016.

2018.  

Finance Operations

The following table summarizes key results of our Finance Operations:

Our finance operations reported net income of $3,178$684 million and $143$593 million during fiscal 20182020 and 2017,2019, respectively.  OurThe increase in net income from finance operations for fiscal 2018 increased2020 compared to fiscal 2017,2019 was primarily due to a $2,721 million increase in the benefit for income taxes attributable to the enactment of the TCJA which reduced our federal statutory tax rate.  Refer to “Management’s Discussion and Analysis – Results of Operations – Provision for Income Taxes” and Note 13 – Income Taxes of the Notes to the Consolidated Financial Statements for further details.  In addition, our net income from finance operations for fiscal 2018 compared to fiscal 2017 was also favorably impacted by a $671$389 million increase in total financing revenues, and a $181an $89 million decrease in provision for credit losses, partially offset by a $241 million decrease in realized gains, net on investments in marketable securities, a $188 million increase in depreciation on operating leases,  and a $104$108 million decrease in provision for income taxes, partially offset by $218 million increase in provision for credit losses, a $159 million increase in operating and administrative expenses, and an $85 million increase in interest expense.

Financing Revenues

Total financing revenues increased 73 percent during fiscal 20182020 compared to fiscal 20172019 due to the following:

OurAs a result of the above, our total portfolio yield, which includes operating lease, retail and dealer financing revenues, increased to 3.44.6 percent for fiscal 2018,2020, compared to 3.14.3 percent for fiscal 2017.2019.

Depreciation on Operating Leases

We reportedrecorded depreciation on operating leases of $7,041$6,820 million during fiscal 20182020 compared to $6,853$6,909 million during fiscal 2017.  The2019.  Throughout most of fiscal 2020 we experienced lower depreciation on operating leases compared to fiscal 2019 due to lower expectations of residual value losses on our more recent originations and lower average operating units outstanding; however, the economic difficulties in the fourth quarter, as a result of the COVID-19 pandemic, resulted in a significant decline in used vehicle values at the end of the quarter and expected end-of-term market values on our investment in operating leases.  As a result, we experienced an increase in depreciation expense duringof $136 million in the fourth quarter of fiscal 2018 as2020 compared to fiscal 2017 was primarily attributable2019 due to anthe increase in average operating lease units outstanding.expected residual value losses, which for fiscal 2020 substantially offset the decrease in depreciation expense from earlier in the fiscal year.

Interest Expense

Our liabilities consist mainly of fixed and floatingvariable rate debt, denominated in U.S. dollars and various other currencies, which we issue in the global capital markets, while our assets consist primarily of U.S. dollar denominated, fixed rate receivables.  We enter into interest rate swaps, interest rate floors interest rate caps and foreign currency swaps to economically hedge the interest rate and foreign currency risks that result from the different characteristics of our assets and liabilities.  The following table summarizes the consolidated components of interest expense: