Don’t be scammed by unscrupulous car dealers

The Federal Trade Commission (FTC) convened a series of forums last year that explored abusive auto lending practices. The Center for Responsible Lending (CRL), a participant in those roundtables, has issued a new research report on deceitful practices that take advantage of unsuspecting customers.

The report, “Deal or No Deal: How Yo-Yo Scams Rig the Game Against Car Buyers,” shows that consumers with low incomes and poor credit scores are the most likely target for these abuses. By preying upon consumers who are the least able to walk away from deals, the opportunity emerges to make more expensive loans and take consumers’ trade-in and/or down payment.

Deal not finalized
This is the first national insight into the prevalence of “yo-yo” scams. This deceitful dealer practice begins when car dealers encourage would-be buyers to leave with a car before finance terms are finalized. With only a conditional sales agreement in place, consumers are encouraged to accept spot delivery, taking the vehicle home. The unsuspecting consumer leaves with the car, trusting the dealer will finalize the terms discussed.

For car dealers, spot delivery reduces the likelihood of the consumer shopping elsewhere for a better deal. Yet for consumers, this practice often leads to problems never anticipated.

“Yo-yo scams occur when a dealer leads a car buyer to believe financing is final,” says Center for Responsible Lending senior researcher Delvin Davis, author of the report. “The dealer lures the consumer back to the dealership, claims the financing fell through, and then pressures the consumer to agree to a new loan at a higher interest rate.”

Deal gets worse
CRL’s study found that consumers who returned to these dealerships were often pressured to sign finance contracts with worse terms than those originally mentioned. The report also showed that consumers trying to walk away from the now-worse deal often faced threats of legal action, criminal charges of auto theft, loss of down payment or fees for mileage and wear and tear. Unfortunately for low-wage consumers with few available choices for financing, many still take the bad deal.

When CRL examined the demographics of consumers experiencing yo-yo scams, once again communities of color were disproportionately harmed. After accounting for poor credit and low-incomes, Latino and African-American consumers were prey to yo-yo scams more than White Americans and consumers ages 25 years old or younger. According to CRL, the majority of consumers wind up with a second finance contract with a higher interest rate.

“Deal or No Deal” is CRL’s followup to an earlier report that found yo-yo scam victims on average received an interest rate that was five percentage points higher than what someone with the same risk level would normally pay.

Protect yourself
Until laws or regulation change the ways auto financing operates, it might be better for consumers to adjust how they actually shop for a new or used car. Just as consumers now shop for the best mortgage rate available, making a comparable comparison of available auto financing terms would remove third-party transactions that now benefit dealers instead of consumers. Beginning with a sober and objective figure for what is affordable will empower consumers.

Secondly, if financing is settled before the search for a vehicle begins, consumers can give themselves negotiating power by offering dealers a cash transaction.

In other words, consumers can choose to seize their purchasing power, rather than forfeit it to car dealers.

Charlene Crowell is the Communications Manager for State Policy & Outreach with the Center for Responsible Lending. Contact her at



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