Yo-Yo Auto Financing
Buying a car is not a small financial decision. It can involve a lot of research to find the specific car you want, with all the features you’re looking for. In these times, inventory is low for many car dealers and manufacturers, making the process even more difficult. Once you find the car you want, though, make sure you don’t fall for yo-yo financing scams.
Yo-yo financing, also known as spot delivery scams, is when the dealership approves you for loan terms with a low-interest rate, only to call you back, later on, to tell you that the financing never went through. You’ll have to return to the dealership to either return the vehicle or agree to much higher interest rates, typically about 5 percentage points higher. Many times, you cannot get your downpayment back or even the car you traded in, so you’re stuck with the new car at unfavorable lease terms.
According to a 2012 study conducted by the Center for Responsible Lending, over a quarter of people surveyed were victims of yo-yo financing scams. Out of over 2,100 people surveyed, 590 of them were victims of this scam. Of those victims, more than 60 percent of them had to pay a higher interest rate than originally agreed upon. In most situations, the consumer was forced to accept the new, worse lease terms. In rare cases, the consumer would be forced to purchase another vehicle instead or to work with an entirely different dealership.
In a report from International Business Times, some yo-yo scams even result in threats and physical violence. In one scenario, two large men were sent to the car buyer’s place of work and violently choked him until he agreed to return the vehicle.
Yo-yo financing can be in violation of multiple laws. Depending on the specific facts of the case, the dealership could violate the Federal Truth in Lending Act, Fair Credit Reporting Act, and Equal Credit Opportunity Act. The dealership also likely committed common law fraud and violated the Massachusetts Consumer Protection Act.
One rule of thumb is if the deal sounds too good to be true, it probably is. During this time, you should be on the lookout for inaccuracies before signing any paperwork.
You can ask for a copy of the approval letter from the lender. Remember that the approval letter is NOT confidential and this information should be given to you upon request. There are times when the dealership makes an honest mistake which results in you coming back in to resign paperwork but ultimately it is up to you to spot any suspicious activity.
