Time to Crack Down on Conditional Car Loans, FTC Is Told

It's time for the Federal Trade Commission (FTC) to crack down on abuses of conditional car loans, consumer advocates testified at a recent Washington hearing.

"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," said Ian Lyngklip, a Southfield, Mich., attorney.

"It's like I walked into a supermarket, purchased an apple, walked outside and took a bite only to have a clerk run into the parking lot and insist the apple be returned," Lyngklip said. 

The practice of issuing conditional loans, known as spot delivery or yo-yo loans in the car industry, is prevalent enough and harmful enough to warrant FTC protective regulations and enforcement action, Lyngklip said.

Unconscionable

"It is unconscionable that a dealer would sell a car and then, because the final credit terms are unfavorable, send the repo man out to repossess the car and refuse to give back the down payment or reimburse for payments made," added Lyngklip. 

A spot delivery, or yo-yo sale, happens when the car dealer sells the consumer a vehicle and completes all the steps necessary to sell the car including executing a contract of sale, signing title, taking a down payment and turning over the keys. 

After the transaction is finished, the dealer calls the consumer back claiming the deal has fallen through. In some instances the dealer uses fraudulent means or forcible repossession to take the car back. 

The FTC Roundtable was entitled "The Road Ahead: Selling, Financing & Leasing Motor Vehicles." Lyngklip was one of five experts participating in a panelwhich discussed "Which Practices, If Any, Cause Significant Harm to Consumers, And What Are Potential Solutions."