Consumer advocates are urging the federal government to crack down on so-called “yo-yo” automobile financing. That’s when a buyer is allowed to leave the sales lot with a car even though the sale isn’t technically final, only to be called back to the dealership days later and pressured to sign a new financing agreement with less favorable terms.

This type of financing abuse was described in testimony submitted to the Federal Trade Commission in February by the Center for Responsible Lending, a nonprofit group, and several other consumer groups. The F.T.C. has held a series of public roundtables called “The Road Ahead,” to gather information on auto financing practices.

In response, a group representing car dealers told the F.T.C. that abusive lending practices are not widespread.

In a spot sale, the center says, most customers believe the deal is final — or close to it. But in reality, the dealership has retained the right to renegotiate terms and even to take the car back if it decides it doesn’t like the deal or is unable to sell the loan to a bank or finance company under terms it deems acceptable.

This can result in what the center calls a “yo-yo scam,” where the salesperson “pulls the consumer back to the dealer, like a yo-yo on a string.” The buyer is typically told the financing “fell through,” and is then pressured to sign a new contract with financing terms that are less favorable — like a higher interest rate or a larger required down payment.

The benefit of such arrangements for the dealer, said Christopher Kukla, the center’s senior counsel for government affairs, is that once consumers take the car home thinking the deal is done, they are not shopping around for better loan terms, or looking at other dealerships for a different car.

In some cases, he said, buyers who refuse to agree to the new terms have had difficulty getting their down payments or trade-ins returned to them — sometimes because their trade-ins may have already been sold. Consumers more likely to be targeted are those with low incomes or blemished credit, and they may only have one vehicle, so they often have little recourse, he said.

The advocacy groups have asked the F.T.C. to halt these sales as “unfair and deceptive” practices, and to ban most spot deliveries because they give dealers an unfair upper hand in negotiations with consumers.

Read more at: bucks.blogs.nytimes.com/2012/04/18/consumer-advocates-seek-halt-to-yo-yo-car-financing/
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