The Yo-Yo Financing Scam
For first-time buyers, and even those who don’t often deal with crafty salespeople, it’s easy to get taken. Don’t fall victim to what’s called Spot Delivery, or the Yo-Yo Financing car buying scam. Read on and learn what to do.
By Aaron Gold
Don’t let this happen to you
A few days after bringing her new car home from the dealership, my friend Lisa got a phone call from the dealer.
“Hi, Lisa. There’s a problem with your paperwork. It turns out your credit isn’t as good as you said it was, and we couldn’t get your car financed at the rate we offered you. We need you to come in right away so we can write up a new contract.”
Lisa smelled a rat, so she called a lawyer. As it turns out, there was no problem with her paperwork or her credit. Her dealer was trying to scam her.
Anatomy of a swindle
The dealership was trying to pull a scam known as “spot delivery” or “yo-yo financing,” which is most commonly used on inexperienced buyers or those with less-than-stellar credit. Now we’re not saying that reputable dealerships would ever pull such a stunt, but buyer beware. These scams have been reported to law enforcement agencies across the country, so it does happen.
Here’s how it works: The dealer sends the customer home in a new car, then calls back a few days later with some excuse (“the financing fell through” is popular). When the customer returns, she is told that her deal must be re-written with a bigger down payment, a higher interest rate, or extended payments. The dealer may say it was an innocent mistake, or try to bully the buyer into paying.
There are two basic variations of the scam. In one, the dealer offers to let the buyer take possession of the car “on the spot,” before financing is approved. (This gives credence to the “financing fell through” story. The dealer knows exactly what kind of financing you qualify for as soon as they check your credit.) In Lisa’s case, the contract was signed and valid, and the dealer was trying to convince her to tear up the old contract and write up a new one.
Note that some dealers do legitimate “conditional deliveries” before financing is approved; however, VroomGirls recommends that you never take delivery of your new car until the deal is finalized, even if that means waiting a few days.
How to avoid the spot delivery scam
o Buy the car for cash or arrange outside financing, i.e. from a credit union or bank loan.
o Fax a copy of the contract to your lawyer for review.
o Do not take delivery of your new car until the contract is signed and the car is registered and insured in your name.
Warning signs that your dealer may be setting you up
o The dealer offers to let you drive the car home before financing is approved.
o The dealer asks you to sign a contract that isn’t fully filled out.
o The contract is labeled or stamped as “conditional”, or there is a “conditional delivery” form.
o The contract has a clause stating that the buyer will return the car or pay more if financing is not approved.
o The dealer refuses to give you a copy of the contract.
o The financing rate or down payment sound too good to be true.
What to do if your dealer pulls the spot delivery scam
1) Don’t panic. You do not have to pay more for your car. Laws vary from state to state, but in most cases, you will either be able to get the dealer to honor the terms of your contract or return the car for a full refund of your deposit and a return of your trade-in.
2) Call an attorney immediately. It’s important to get sound legal advice concerning the laws in your state and the validity of your sales contract. If you don’t have a lawyer, find one that specializes in car-dealership law. Many will provide a free first consultation, and a phone call or a letter from a lawyer to the dealership may be all it takes to get them to cease and desist. Your state’s Attorney General’s office may also be able to provide guidance.
3) If you must go to the dealer, prepare for battle. Make copies of all paperwork relating to the new car; leave one at home and take one with you. Plan to return on a weekday when banks are open and your lawyer is in her office. Clean your personal belongings out of the car and ask a friend to follow you to the dealership so that you can return the car if need be. When you get to the dealer, tell them that there are only two possible outcomes: Either you will keep the car under the terms you agreed, or you will return it for a full refund. Repeat this like a broken record. Once the dealer realizes you know your rights and aren’t going to budge, they may (grudgingly) agree to honor the terms of the deal rather than take the car back. (Be sure to check any new contracts against your copies of the original!) The dealer may try to drag things out in order to wear you down, so be prepared for a long visit.
4) Don’t give up the keys until you have your refund in hand. If you do return the car, keep the keys until you get your refund — cash, cashier’s check, or proof that the funds have been returned to your credit or debit card (call your bank to verify), along with the keys to your trade-in. If the dealer says she needs to inspect the new car, go with her and unlock it, but keep those keys! If the dealer says the refund will take time to process, tell her you will return when the money is ready. If the dealership insists on giving you a check, take it to the bank and cash it before turning over the car.
5) Accept nothing less than a full refund. The dealer may tell you he cannot refund the sales tax, or that he charges a “restocking fee”, or that he is deducting money because you put miles on the car. All three tactics are illegal. If the dealer tells you your trade-in has been sold, you are entitled to a refund of the fair market value. (In some states, you are entitled to the amount at which the trade-in is valued if that amount is higher than the fair market value.)
Call your lawyer immediately if:
o The dealer tries to give you anything less than a full refund.
o The dealer says your trade-in has been sold. (You want to ensure you are getting fair market value for it.)
In the end, it’s always best to patronize dealerships where your friends and family have shopped and have been happy with the service. A good referal from a trusted source is your best bet.