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There is a common automobile dealer transaction which creates a yo yo situation (also called a spot delivery).  How does this work?

Let’s say a husband and wife go to the dealership on a Friday afternoon at 5:00 p.m.  They meet with a salesman and find a car they like.  The salesman puts together all of the paperwork, and they agree on the deal which includes a financing arrangement.  The husband and wife leave the dealership around 7:00 p.m. in their brand new car.  Sounds great right?  The family is happy, and the dealer has sold a car.  The deal is over.

Not so fast.  On Monday morning, husband receives a call from the salesman at the dealership.  He explains to the husband that the financing wasn’t approved, and they need to bring their car back in.  The husband is confused and doesn’t understand because they traded in their old car and signed all the paperwork.  He asks the salesman about the trade-in vehicle, and he’s told they can pick it up.

Upon arriving at the dealership, the salesman asks the husband and wife to sit down to discuss the finances.  He explains that they can keep this new car if they pay a little higher interest rate.  Since it’s only an extra $50/month and since they have been driving the new car all weekend and REALLY like it, they agree.  They sign new documents and drive off in their new car.

  • Is this legal?  It depends on who you ask.  If you ask every automobile dealership, manufacturer and financier, they will respond, “Of course it’s legal.  Dealers don’t finance cars, and they have to be able to work out the loan.”  If you ask any consumer lawyer, they will tell you, “Hell no it’s not legal.  The transaction was completed.  The Truth and Lending Act was in place when the terms were disclosed.  The dealer agreed, and a contract was consummated.  The dealer agrees to finance the car and sells the paper.”

So, what’s the truth?  It is very unclear.  In Alabama, there have only been two cases which touch on this issue, one Federal (Pescia v. Auburn Ford-Lincoln Mercury, Inc., 68 F.Supp.2d 1269 (M.D. Ala. 1999) and one State (Shoals Ford, Inc. v. Clardy, 588 So.2d 879 (Ala. 1991).  Neither of these cases truly discusses the issues involved with yo-yo transactions, especially in this day and age.  In Pescia, the Court let the suppression claim go to the jury, and Shoals simply touched on the fact that it was a “spot delivery” but did not go into detail on that issue as it was more of a competency issue.  This illustrates the problem with arbitration.  Even if these types of claims have been litigated in the last 16 years, we wouldn’t know due to the arbitration clauses.  Arbitration doesn’t create any legal precedent so we know which way the law is going.  The cases are not reported, and the decisions are not published.

So, what is the answer?  In my opinion, this is an illegal practice.  Let’s say the husband and wife entered the dealership, signed the contracts, and drove away with the new car.  But, instead of the dealer calling, the husband called the dealer and said he wanted to return the vehicle.  Do you think the dealer would take it back?  Unless the dealer had an internal policy, the answer is a resounding NO (there is no 3 day right of rescission in Alabama except for home solicitation sales).  How can the contract be ironclad for the dealer and not for the buyer?  Isn’t that one-sided? Is there enough consideration?  Is there a contract? Unfortunately, there are many arbitrators and judges who don’t understand these issues and will hang on various terms in the agreements as opposed to assessing the whole picture.

This is a HUGE problem around the country.  Once the dealer calls the person back in, they have much more leverage against the consumer to negotiate a better deal.  Usually, these dealers are taking advantage of poor and uneducated consumers.  See Below and this article.

Why do dealers do this?  They want to trap the buyer so that they don’t go to another dealer.  Once that consumer takes the car home, they become attached to it emotionally.  It’s an awful way to do business, and it’s not right or legal.  If you know of someone who is involved in this issue, let them know that they do have options.

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