Today, we joined the National Association of Consumer Advocates, the Consumer Federation of America, the Center for Responsible Lending, Consumers for Auto Reliability and Safety and the National Consumer Law Center, on behalf of its low-income clients, to file a petition asking that the Federal Trade Commission (FTC) promulgate a rule requiring that a credit contract between a consumer and an auto dealer constitutes the final terms of a car sale. This will prevent common schemes where the consumer signs what seems to be a final contract, and drives home, but then is “yo-yo’d” back to pay higher costs or lose the car.
We discussed this practice, also called “spot delivery,” in our recent U.S. PIRG Education Fund/Frontier Group report “Driving Into Debt:”
“Some dealers employ a deceptive tactic, often called “yo-yo” financing, designed to ramp up pressure on car buyers. According to the Federal Trade Commission (FTC), this tactic occurs when dealers “deceptively or unfairly induce consumers who have signed contracts and driven off the lots with the vehicles to sign new contracts and pay a higher interest rate, make an additional down payment, or agree to other terms that differ materially from the original terms to which the consumer agreed.”This tactic typically begins when a customer is told by the dealer they have been approved for financing, signs every document presented by the dealer, and drives off the lot thinking the deal is done. Contrary to what the consumer was told, the dealer considers that it made a “spot delivery” of a vehicle before financing was finalized.”
Some car dealers have referred to the final car purchase process as putting the consumer in “the box” where they are pressured by a sophisticated closer into accepting lots of changes and add-ons. Commercials for some new alternative dealerships play on the pressure sales tactics at some traditional dealerships. The petition expresses concerns that, while these unfair practices are longstanding, the increased use of electronic documents may be making it worse:
“Historically, during a car purchase, buyers are asked to physically sign numerous documents, including a contract with credit terms, which includes the expected down payment, monthly payment, and interest rate, and are then permitted to drive off the lot with the purchased car. The stack of documents often includes a separate document (referred to in some places as the “spot delivery agreement”) that asserts the deal is not final until the credit terms disclosed on the credit contract and agreed to by the buyer are assigned to a third party. Now, many car dealers conduct the transaction on computers or other electronic devices, and some dealers give the consumer a flash drive with electronic documents on it. The credit contract and spot delivery agreement contradict each other in a material way – one appears to be final while another claims the transaction is incomplete until further action is taken.”
When I bought a new car a few years ago, I had to read innumerable documents on a computer through a glass desktop and sign those documents with an electronic pen. Having shown up at the dealer’s with cash from my credit union, I simply said “No”, “No,” and “No” again, but I can easily see how an average consumer couldn’t keep up with what was going on through that digital desktop.
The petition tells the stories of specific car dealer victims. It outlines the life-ruining cost of unfair car sales practices in great detail and includes documents pertaining to the consumers’ lawsuits. Many of the tragic stories are from consumers represented by consumer protection attorneys who are members of the National Association of Consumer Advocates, which led the petition.
Years ago, special-interest opponents of the FTC helped enact the so-called Magnuson-Moss FTC Improvement Act,” which generally subjects the agency to a ponderous and unique and therefore rarely-used rulemaking process that a former FTC chair called “both draconian and medieval.” However, the 2010 Dodd Frank Wall Street Reform and Consumer Protection Act gave the FTC traditional Administrative Procedures Act rulemaking used by all other agencies, for car dealer practices only. We’re hoping that the petition helps the FTC to start a rulemaking on yo-yo/spot delivery practices. As the petition explains: “Consumer finance experts contend that a car purchase has become what is arguably ‘the most complicated transaction a consumer ever faces, even more so than a home purchase’.”
While U.S. PIRG and partners are working to change America’s car-centric policies, the opening sentence of Driving Into Debt says it all:
“In much of America, access to a car is all but required to hold a job or lead a full and vibrant life.”
The FTC should respond to this petition based on the stark facts it outlines about how common car sales practices violate the FTC Act. But during an ongoing two-year pandemic when jobs are scarce and public transportation is not predictable, if available at all, the FTC must respond. It must make car buying safer and fairer for consumers. This petition shows how.
Senior Director, Federal Consumer Program, PIRG
Ed oversees U.S. PIRG’s federal consumer program, helping to lead national efforts to improve consumer credit reporting laws, identity theft protections, product safety regulations and more. Ed is co-founder and continuing leader of the coalition, Americans For Financial Reform, which fought for the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, including as its centerpiece the Consumer Financial Protection Bureau. He was awarded the Consumer Federation of America's Esther Peterson Consumer Service Award in 2006, Privacy International's Brandeis Award in 2003, and numerous annual "Top Lobbyist" awards from The Hill and other outlets. Ed lives in Virginia, and on weekends he enjoys biking with friends on the many local bicycle trails.