Deal or No Deal: How Dealers Rig the Game Against Car Buyers


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This presentation highlights the findings of a recent CRL paper on the prevalence of yo-yo scams, insight into how yo-yo scams are perpetrated, and identify which consumers are most likely to be targeted.

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Deal or No Deal: How Dealers Rig the Game Against Car Buyers

  1. 1. Deal or No Deal:How Yo-Yo Scams Rig Auto Loans Against Consumers Delvin Davis Senior Research Analyst April 2012
  2. 2. What is a Yo-Yo Scam?• Yo-yo scams are based on a practice called “spot deliveries” where the dealership allows the consumer to drive the car home “on the spot” before the financing is finalized.• The consumer is led to believe the deal is final, or is as good as final.• The “yo-yo” occurs when, several days later, the dealer calls the consumer back to the dealership, claims the financing fell through, and pressures the consumer to sign a new and more expensive financing contract.
  3. 3. How are Yo-Yo Scams Harmful?• Yo-yo scams remove consumers from the marketplace so that they do not continue to shop for better deals elsewhere.• Dealers have several tactics to pressure the consumer to accept a more expensive deal: • Many consumers have had difficulty reclaiming their trade-in and downpayment after returning to the dealership. • Dealers often use aggressive measures to force the consumer to return the vehicle, including threatening to bring auto theft charges.
  4. 4. Our Research• Data on yo-yo scams is very scarce.• To gain information, we conducted an online survey of professionals that counsel or advise consumers with auto finance-related issues.• Acquired 32 respondents representing over 2,100 clients in the previous year. • 590 of these clients (27%) experienced a yo-yo.
  5. 5. Research FindingsFinding 1: Respondents reported that, in their experience, cardealers commonly target consumers with poor or no creditstanding for yo-yo scams.Finding 2: Respondents observed that half of the consumersthey served who had experienced a yo-yo scam had troublereclaiming their down payment or trade-in vehicle, or had thedealer threaten legal action against them if the car was notreturned.Finding 3: Respondents reported that a majority of theconsumers involved in a yo-yo scam ended up signing a secondfinancing contract for the same car, and at a higher interest rate.
  6. 6. Demographics of Consumers Experiencing Yo-Yo ScamsPeople with poor or no credit standing People with low-income Latino Americans African Americans White Americans People age 25 or younger Military personnel Women Men Senior citizens Asian Americans Other 0% 10% 20% 30% 40% 50% % Respondents Ranking as a High-Target Demographic
  7. 7. Top Reasons Dealers Cited for Yo-Yo Scams Lender would not approve at the consumers credit standing Needed more of a down payment Lender would not approve the interest rate Made a mistake on the paperworkLender would not approve for the full loan amount Lender would not approve withoutthe purchase of an additional product Other 0% 20% 40% 60% 80% 100% Percentage of Respondents
  8. 8. Consumers Experiencing High-Pressure Tactics in Yo-Yo Scams The dealer threatened legal action to retrieve the car?The consumers trade-in could not be returned or was already sold The consumers down payment was non- refundable The dealer charged a rental fee, usage fee, or restocking fee for the time the client had the car?The consumers payment for tax, title and fees could not be returned 0% 20% 40% 60% 80% Estimated Average % of Consumers
  9. 9. Outcomes of Yo-Yo ScamsWound up with new financing at a higher interest rateNegotiated a different deal to keep the same car they purchased. Negotiated a deal for a different car then what they originally purchased.Wound up not purchasing any car from that dealer at all 0% 10% 20% 30% 40% 50% 60% 70% Estimated Average % of Consumers
  10. 10. Policy Recommendation Whereas…• Dealers use the yo-yo scam to create an unfair bargaining advantage over the consumer.• Yo-yo scams distort free competition, as consumers cannot effectively shop the marketplace unless they can trust that a financing offer is a firm and real agreement.• Conditioning financing on the dealer’s sale of the contract places the risk burden on the consumer, instead of on the dealer where it belongs. Spot delivery agreements should be banned whenever the condition to finalize is left at the sole discretion of the dealer.