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Auto loans and the notorious "Yo-Yo" dealer scam

[Apr 17, 2012.]


Car dealers call them "spot deliveries." They occur when a customer drives home his or her new car immediately after a deal is concluded. Nothing wrong with that. Who wants to wait days or even longer before taking delivery of a vehicle? Let's face it, we're all like kids before Christmas when we change cars, and just can't wait to play with our shiny new toy.

For most buyers, driving away in the new vehicle isn't a problem. But some unscrupulous dealers use spot deliveries as a device to hook unwary customers in an unsavory auto loans scam. And a new report from the Center for Responsible Lending (CRL) reveals that this practice is more common than you may think.

What is a Yo-Yo scam?

Herb Weisbaum described how the scam works on MSNBC on Apr. 12. He told the two completely separate stories of Leslie Hurst of Ludlow, Ky. and Carolyn Edwards of Wellington, Fla., both of whom bought cars at their local dealerships. They signed all the documentation, and drove the vehicles home. A full three weeks after their purchases, salespeople called each woman to tell them that their auto loans had fallen through. Both were shocked, because they believed they had finalized binding deals. Hurst caved and returned her car, suddenly finding herself without transportation. Edwards stuck to her guns, but ended up suffering the added trauma of seeing hers repossessed.

These stories are in some ways typical of Yo-Yo scams. The salesperson "forgets" to tell the buyer that the sale is conditional upon the dealership being able to place the finance on terms it likes, and that days, weeks or even months later the company can cancel the agreement. But in other ways the experiences of the two women are not at all typical.

That's because often the dealership's intention is to reel back in the buyer and persuade them to sign a new finance contract at a higher rate. Indeed, in more than 60 percent of the cases examined by the CRL study, consumers ended up agreeing to higher rates. And you can see why they thought they had little choice, given the tactics their dealers used:

  • 59.3 percent of customers were told their trade-ins could not be returned or had already been sold.

  • 53.6 percent were told their down-payments were nonrefundable.

  • 32.7 percent told their payments for tax, title and fees couldn't be refunded.

Auto loans illegally manipulated

The National Automobile Dealers Association argues against further regulation, claiming, according to the trade journal Automotive News, "They occur only rarely. For example, yo-yo financing. Consumer-advocate groups see this as a sneaky tactic to get more money. The industry sees it as a mistake most dealers probably prefer to avoid." Believe that if you will.

Meanwhile, many consumer lawyers contend that yo-yo scams are illegal. One, quoted by the CRL, told a Federal Trade Commission "roundtable" last year:

In no other area of our commerce can someone sign on the dotted line, deliver the product, and then cancel the transaction and insist on the product being returned because the final credit transaction did not produce the hoped-for income.

However, that seems to cut little ice with those dealers that continue to practise these cons, and you need to ask yourself how you would feel -- and what you would do -- if you were to become a victim.

Comparison shopping for auto loans online

The easiest way to avoid getting into that position is to arrange your finance elsewhere. Talk to your bank or credit union, and find competitive quotes for auto loans online.


About Author:

Peter Andrew has been writing about -- and for -- business for more than two decades. For the last couple of years, he has found himself increasingly specializing in the U.S. financial sector.

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