Gradually over the past couple of years, auto dealers have started leveraging so-called “yo-yo’ing” – a scenario where a consumer buys a car, gets it home, and then a few weeks later, gets a call from the dealership saying that their financing wasn’t approved. The kicker is that the consumer could reapply, but at a higher interest rate and monthly payment.
In a new survey conducted by NPR News, 40 consumer attorneys who work on auto cases said they've gotten calls from nearly 900 car buyers in just the past year who say they felt double-crossed by a yo-yo car sale.
And when that happens, the consumer who bought the vehicle could find themselves without the car they bought and without the vehicle they traded in. In the NPR story, a family that was reportedly yo-yo’ed by a Hyundai dealer in Orlando said the experienced left them with no car for a year and dependent on family and friends for rides to doctor’s appointments and getting to and from work.
Yo-yo? No – whoa you!
As ConsumerAffairs found out, there’s not much in the way of blanket protection for the consumer in these situations. The Federal Trade Commission (FTC) has proposed a rule to stop dealerships from employing tactics that can plague consumers throughout the car-buying experience, but that’s not a done deal yet.
In the meantime, protections are a state-to-state thing. According to research done by Lawrence Hodge at Jalopnik, an automotive industry opinion website, different states have different notification timeframe requirements for dealers.
As examples, Hodge points to Maryland where a dealer has just four days to notify a customer if they’re approved or not. In California, it’s just over two weeks.
Without federal protection, a lot of the onus falls on the consumer to make sure they’re not going to be yo-yo’ed. The Auto Fraud Legal Center points out that if someone buys a car that is financed through the dealership, the dealer can cancel the contract, but only if it notifies you within 10 days of the date on the purchase contract.
Still, before anyone puts their John Hancock on a car loan agreement, they need to look at their purchase contract to find out what things could go wrong.
“That’s the long yellow document that says ‘RETAIL INSTALLMENT SALES CONTRACT’ at the top. Turn to the back of the purchase contract, and find the box that says ‘Seller’s Right to Cancel.’ [usually at the bottom of the second column],” the Center wrote.
Fight fire with fire
The FTC suggests that consumers fight fire with fire. For one thing, they can tell the offending dealership that they will report the dealer to the attorney general if they don’t make things right.
The Auto Fraud Legal Center adds that if the dealership cancels within 10 days, consumers can get either their down payment or trade-in back.
“The purchase contract requires the car dealer to return to you all consideration (i.e., everything) given for the purchase. This includes your trade-in vehicle. If you give a $2,000 down payment and a car as a trade-in, the car dealer must give you back both the $2,000 and the trade-in when you return the car you purchased,” the Center suggested.
And if the dealership says it’s already sold the trade-in? The Auto Fraud Legal Center says that’s another potential problem the buyer needs to ask upfront.
If the language of the purchase contract allows that, the dealership may only have to pay back the value of the trade-in as listed on the purchase contract, (2) the fair market value, or (3) what the car dealer received when it sold your trade-in.
Even though a dealership may turn out to be the bad actor in situations like these, car manufacturers don’t want any part of it. Before buying a car, it may be wise to do a web search for "retail installment sales contract plus the brand name. ConsumerAffairs found that Volkswagen and Ford both offer explanations of those contracts. It’s a safe assumption that other major automakers do, too.