Spot Delivery/Yo-Yo Financing Scams

A Spot delivery, also known as yo-yo financing, is an abusive automobile sales tactic that occurs when a dealer allows a buyer to take possession of a vehicle before the vehicle’s financing is complete. Spot delivery often occurs because many vehicles are sold during the night or on weekends when banks are not open to approve or decline a consumer’s loan application. Spot delivery can occur during the purchase of a new or a used vehicle and is commonly used on consumers with poor credit or on inexperienced consumers. This type of sale seems attractive to some consumers – who are unaware that they are about to become the victim of a spot delivery scam/yo-yo scam – because it provides them with the ability to receive a car much sooner than a typical purchase. Many vulnerable consumers are also enticed by the terms of the offered financing rates. A dealer may promise a consumer a certain financing rate, but the dealer may be unable to actually secure such a rate. In spot deliveries, after a consumer has driven off with the vehicle, having been told that a lender or creditor approved the financing of the purchase or lease of their vehicle, the dealer will oftentimes call the consumer back into the dealership days or even weeks later; claiming that the consumer’s financing did not go through and that they need to re-secure the financing for the vehicle. This is often where a dealer will engage in predatory or deceptive behavior, and sometimes the dealer will blame the situation on the consumer allegedly having not filled out the financing paperwork truthfully and/or accurately, when that is not what happened.

Upon the consumer’s return to the dealership, the dealer will try to pressure the consumer into renegotiating the deal. For the consumer to keep the vehicle, dealers may try to require that the consumer to list a cosigner or pay a higher interest rate, higher fees, an increased monthly payment, or a larger down payment. If a consumer refuses to comply with these demands, the dealer may threaten to report the vehicle as stolen or to repossess the vehicle from the consumer. If a consumer asks to return the vehicle, the dealer may try to force them to pay fees for rental rates or the alleged wear and tear of the vehicle while it was in the consumer’s possession. Since many consumers do not want their vehicle to be taken away, many will give in to the demands of the dealer. According to the Center for Responsible Lending, consumers that renegotiate their financing due to a spot delivery will often end up with an interest rate that is around 5 percentage points higher than that of their original loan.

Spot deliveries can cause consumers to pay much more than originally anticipated but there are many ways that consumers can protect themselves against this deceptive sales tactic. The best way for consumers to avoid a spot delivery is to avoid dealer financing by obtaining preapproved financing and financing the vehicle directly with a bank or another independent lender. If the consumer must finance through the dealer, it is important that they watch out for sales contracts that are not completely filled in, contracts that do not clearly state the interest rate of the loan, and forms that use terminology declaring a deal as “conditional.” Additionally, another red flag for a spot delivery scam is if the dealer allows the consumer to take the vehicle without signing any contract. Before a consumer drives off with a vehicle, they should make sure that they have signed a complete contract with clear and definite terms, and if possible that the vehicle is registered and insured in their name.

Spot delivery/Yo-Yo scams are pervasive in America and are especially damaging to purchasers with poor credit. These deceptive tactics have caught the attention of government agencies, including the Federal Trade Commission, which have filed complaints against dealers that engaged in fraudulent financing practices. Dealers committing illegal spot delivery practices will often call back their customers when financing contracts allegedly fall through, and will tell them that they have to sign new contracts with worse terms. Some dealerships also may tell their customers that if they do not agree to the new terms, they will have to forfeit their trade-in vehicle and their down payment on the purchase or lease of a vehicle. Dealers engaging in spot delivery and yo-yo scams will often lie to a consumer and claim that they are unable to refund a consumer’s down payment; when they actually can. Some dealerships will also lie to a consumer by stating that they have already sold their trade-in vehicle, so that the consumer will feel like they have to go along with the new terms of a loan or lease that the dealer is proposing.  Some dealers will put expensive add-ons into a consumer’s financing package and will falsely tell a consumer that these add-ons will help the consumer secure financing. Some dealers will go as far as to lie to a consumer and tell the consumer that they have to increase the total purchase price of their vehicle in order to help the consumer secure financing.

It is an unfair, deceptive, and unconscionable act for a dealer to represent that a consumer’s financing was approved when it was actually declined, or when it was never actually approved in the first place. This can be deemed a “variation” of bait-and-switch advertising. Consumers who are the victims of spot delivery/yo-yo scams are entitled in many states to collect damages pursuant to their respective state’s law(s). Many states have their own laws that govern spot delivery scams. Consumers may also be protected from these scams by federal consumer protection statutes, and entitled to relief under them.

Consumers should keep copies of any paperwork related to the alleged financing of a vehicle’s sale or lease, and they should also document and keep track of the timeline of events that occurred. If a consumer falls victim to a spot delivery/yo-yo scam, they should contact an attorney who is licensed in the state that they reside in for help in regard to what the next steps that the consumer should take are, and/or their respective state’s Attorney General’s Office, and/or a government agency that helps consumers.