An increasingly common car sales tactic is the “spot delivery” or “yo-yo sale”—allowing a buyer to take delivery of a vehicle before the dealer has confirmed that another entity will buy the finance agreement. (Technically, in most dealer-arranged financing, the dealer is the original lender or creditor. The dealer then sells the finance agreement to a third party lending institution). The yo-yo sale involves telling buyers that they are approved for financing on a specific vehicle, having them sign all the paperwork, and allowing them to take the vehicle home. A few days or weeks later, the salesperson calls the buyers and informs them that the financing has “fallen through.” The salesperson tells the buyers that they can keep the vehicle if they agree to pay a higher interest rate or get a co-signer. Alternatively, the salesperson might tell the buyers that they must buy a different vehicle. Essentially, the car dealer tries to rewrite the contract with terms that are more favorable to the dealer and less favorable to the buyer. If consumers express unwillingness to comply with the post-sale demands, then the salesperson threatens repossession or arrest.
However, this sales tactic is illegal. Federal law (as well as the laws of some states) prohibits this type of transaction. The federal Truth in Lending Act, for example, requires clear and conspicuous disclosure of financing terms, including the annual percentage rate (APR). Spot deliveries make the point at which financing begins uncertain, which causes the annual percentage rate (APR) stated in the finance agreement to be incorrect. Moreover, because the dealer is usually listed as the creditor or lender in a finance agreement, financing has not “fallen through.” Instead, the dealer has been unable to sell the finance agreement for as much profit as it wants. Through spot deliveries, dealers are merely attempting to increase their profits by having the consumer enter into a new finance agreement. However, dealers should still be bound to the original sales terms.
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