Yo-Yo Auto Scams: Your Financing 'Fell Through' So You Have to Return the Car or Pay More
Dealers sometimes falsely tell car buyers they have to return their vehicles unless they pay more or agree to higher Interest Rates with the excuse that their financing wasn't approved
You've finally filled out the lengthy paperwork for your new or used car and drive it home in triumph. Everything is done, right? But you may get a phone call a few hours, days or even weeks later from your dealer saying that your financing fell through and that you have to return the car or agree to different financing terms. That's illegal. If a dealer tells you this, it's time to get help.
It's called a yo-yo auto sale
This situation is known as a spot delivery or yo-yo auto sale and it's illegal. Both parties have done everything required by law to sell (or in your case, buy) the car. Then the dealer contacts you and says that you have to bring it back because of some hitch with the financing. But you do get an option to keep the car, the car you now love, if you pay another fee, accept a much higher interest rate, or otherwise agree to some monetary concession.
where it typically happens
This fraud usually happens at smaller used car dealerships, though it does also sometimes happen at bigger ones, too. The problem, often related to your credit, is not your fault at all. Dealers frequently finance the loan through the dealership itself with the intention of later selling it to a finance company. Sometimes, however, the dealership staff find out that they won't be making as much when they sell your financing as they had expected or that no finance company will buy the loan for your particular terms.
you'll be pushed hard to Re-Negotiate
Dealership staff may try convincing you that the only way to keep your vehicle is to re-negotiate your contract. The problem is that you already have a contract and that needs to be voided. If you already have a contract, don't sign a new one.
Why does the dealership want you to void the first contract and sign a new one? They don't want to be responsible for financing your vehicle. They are in the business of selling that financing to other companies, not doing it themselves. But in order to legally get you to pay more, they need to void the first one and get you to sign a new one. The new contract always has a higher loan term and will likely require you to put down more money as a down payment in order to make your situation more attractive to potential finance companies.
tactics used by Shady dealers
Dealership staff may tell you that the contract is automatically cancelled because financing fell through and then threaten to keep your down payment and trade in if you refuse to sign a new contract. Some threaten customers with arrest, criminal prosecution, or vehicle repossession if they didn’t take a new deal, even when the original deal is still valid. They may claim they can't return your old vehicle because it has already been sold or sent to auction, but it's most likely still sitting on an overflow lot. Dealership staff may even try appealing to your sympathies by claiming that an innocent mistake was made and that they will be fired or forced to make up any difference from their paychecks.
What to Do if this is you
If you have a legally-binding contract with the dealer, the dealer has to honor that contract just like you do. In many past cases, consumers who have hired a lawyer and pursued legal actions have almost always won their cases with settlements between $50,000 and $100,000. So if this happens to you, contact a lawyer immediately to protect your rights. Don't forget to contact the North Carolina Attorney General's Office.
Dealerships are now writing 'outs' in their contracts
Some dealers are adding clauses to their contracts that require you to return the vehicle in the event that financing falls through. Even if this situation affects you, contact the North Carolina Attorney General's Office anyway to get a legal opinion about your situation. Every contract is different and there might be something illegal about your contract. The dealership may even already be under investigation for shady practices.
Read Everything you Sign
We can't say it enough, but people still sign contracts without reading and understanding them. We know that reading those contracts is annoying and time-consuming. But it's important to do this so you know what you're getting into. You don't want to be getting yourself into a bad situation just because you didn't take the time to read your contract.