Yo-Yo Sales: Why are they so wrong?
Chances are, if you financed your car through a Maryland car dealer, they had you to sign a “contingent delivery agreement” or “spot delivery agreement” or “bailment agreement” or some similar nonsense sounding document that was not explained and/or you did not understand. Spot delivery means delivery today, now, on the spot. The dealer practically forces a car on you, and insists that you take the car home today. But they are not going to let you drive over the curb until, buried in the paperwork, you sign their spot delivery agreement saying that if and when they call, you will come back with the car.
What do these “agreements” mean? Typically, they contain words to the effect that if the dealer is not able to sell your financing contract to a lender on terms acceptable to the dealer, then the dealer gets to call off the deal and force you to return the car, and pay for the mileage you put on it. Plain English Translation: the bank did not offer them as much money as they wanted for the contract, and they have changed their mind. But wasn’t it a done deal, you ask? The short answer is YES, but not in the dealer’s mind. (More on that below. But first, Did you know: usually when the bank takes the “assignment” of the contract, the dealer gets money back from the bank? This is because the interest rate on the “buy rate” that the bank pays for the financing contract is far less than the “sell rate” — the interest rate the dealer gave you. This “yield spread” is often as much as TWO PERCENTAGE POINTS OR MORE. So, if you thought the dealer was shopping the banks to get you the best deal on financing, you would usually be wrong — they are often shopping to see which bank will give them the biggest payback.)
Of course, the “spot delivery agreement” just creates the opening for the dealer to ask for more money. For example, they might say: “Your financing was not approved. We need you to either give us another $1,000 as a down payment, or else you are going to have to turn the car in.” Or, they will say: “The financing fell through. We need you to come in and sign another contract.” Hence the term “Yo-Yo Sale.” They pull you back into the dealership almost as fast as they threw you out in that new car that they insisted that you drive off the lot today in the “Spot Delivery.”
But wait — didn’t you already have a deal? Not so, says the dealer — they changed their mind. Well, do you think that you, the consumer, could change your mind? Do you think you could just call them up and say: “I think I paid too much for this car, so either you will have to give me $1,000 back, or else I am bringing the car in and unwinding the deal.” Well, faster than you can say “Yo-Yo Sale” they would remind you that right on the face of the contract it says that there is NO COOLING OFF PERIOD.
Check your paperwork. If you signed a spot delivery document, you should report it to the Maryland MVA and to the Consumer Protection Division of the Maryland Attorney General’s Office. And if you are being harassed by a dealer to bring the car back, contact the MVA immediately and consider seeking legal advice. Why? Because since at least 1980, the Maryland MVA has been telling its car dealers not to use these so-called “agreements.” Here is what the MVA said in their March 10, 2005 Dealer Bulletin No. D 03-05-01:
“Temporary registration permits, or certificates and plates, may not be used by dealers in cases where vehicles are released to potential purchasers prior to consummation of a vehicle sales transaction. These types of transactions are commonly referred to in the industry as “Spot Delivery,” “Fronting” “Macarthur Statement,” etc.
Maryland Vehicle Law and Agency Regulations provide for issuance of types of temporary registrations only in the case of bona fide sales. As this Administration has advised in previous Bulletins, a bona fide sale exists only after all financial arrangements and any other prerequisite conditions have been met. Until such time, there has been no sale and temporary registrations may not be issued….
Complaints about spot delivery have been the result of “Supplemental Contracts” that are added to finance contracts stating financing has not been finalized contrary to agency regulation. Dealers are advised not to use these “Supplemental Contracts”, which have resulted in financing at higher rates than originally contracted, and failure to return deposits, and failure to return trade-in vehicles.”
Bottom line: if the dealer gave you temp tags and you drove the car off the lot, there was a bona fide sale, and according to the MVA, they can’t now say otherwise.
So, how can you avoid getting taken to the cleaners? Its simple: get your financing pre-approved by a bank or credit union, and don’t do a “Spot Delivery” and don’t ever sign a “Supplemental Contract”, no matter what it is called. You wouldn’t take possession of a new house before your mortgage was approved, would you? Well, the same logic applies here: don’t take possession of a car until the financing is approved. And if they give you those temp tags and tell you to take the car home, then don’t sign any spot delivery agreement.
So, what is the best way to know the financing is approved? Answer: avoid the dealership financing and go to your bank or credit union and get pre-approved for an auto loan. That way, the only thing you will have to negotiate is the price of the car, and when you drive the car off the lot, you can rest assured that the dealer is not going to try to call and say: Yo-Yo: “your financing fell through.”
If you have been a victim of a Yo-Yo scam, file a complaint with the Maryland MVA and with the Maryland Attorney General’s Office. Also consider filing with the Federal Trade Commission and the Better Business Bureau. Here is how:
Maryland Attorney General Consumer Protection Division Complaint Form
MVA Complaint Form Against Car Dealer
File a formal complaint with the FTC
Better Business Bureau Complaint
Questions? Feel free to contact us.