Last September, in its first action against “yo-yo” financing tactics, the U.S. Federal Trade Commission (FTC) charged the Sage Auto Group, comprising nine Los Angeles-area auto dealerships, with using several unfair and deceptive sales and financing practices.
As explained by edmunds.com, yo-yo financing is a by-product of “spot delivery” scams.
When a consumer, usually someone with a poor credit score, is allowed to sign a contract “on the spot” and drive a purchased vehicle off the lot, before the financing is complete, it can trigger the yo-yo financing scam. Some days following the purchase, the dealer calls the buyer to say that the financing fell through, and the buyer is forced to sign a new financing agreement at a higher interest rate, or lose the car purchase.
“Spot deliveries, dealers say, turn shoppers into buyers. But consumer advocates say spot deliveries leave buyers with so-so credit vulnerable to dealership abuses. Consumer protection agencies have long tried to enact laws against the practice of spot deliveries. …Spot-delivery abuses show how vulnerable subprime buyers can be to dealership scams.” (edmunds.com).
The Sage Auto Group case is “the FTC’s first action against an auto dealer for ‘yo-yo’ financing tactics: using deception or other unlawful pressure tactics to coerce consumers who have signed contracts and driven off the dealership lots into accepting a different deal,” according to the FTC. According to the FTC’s complaint, the defendants entice consumers, particularly financially distressed and non-English speaking consumers, into their dealerships with print, internet, radio and television ads that make an array of misleading claims. The FTC also alleges that the defendants packed extra, unauthorized charges for “add-ons,” or aftermarket products and services, into car deals financed by consumers.
In March, Sage Automotive Group agreed to pay more than $3.6 million for return to consumers in order to settle the FTC charges. The proposed settlement, filed in the U.S. District Court for the Central District of California, will prohibit the defendants from making misrepresentations relating to their advertising, add-on products, financing, and endorsements or testimonials.
The proposed order will also bar the defendants from engaging in other unlawful conduct when a sale is cancelled, such as failing to return any down payment or trade-in or seeking legal action, arrest, repossession or debt collection unless the action is lawful and the defendants intend to take such action.
Virginia residents should be on the lookout for this behavior from car dealers. Do not get sucked into agreeing to new terms that are unfair. If your Virginia car dealer tries to pressure you into new terms, contact an attorney to review the documents.
Craig Follis has extensive experience in litigation, negotiating and settling suits, and providing legal opinions on liability and insurance coverage. You can reach him at (888) 703-0109 or via email at cfollis@lawyersva.com.