The Spot Delivery (or Yo-Yo Financing) Scam

Man looking into car in car dealership
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It happens all too often: You find a car you like, hammer out a deal, shake hands with the smiling sales rep, and head home in your new ride. A few days (or perhaps weeks) later, you get a phone call from the dealer.

"I'm really sorry, but we weren't able to get the financing approved." Or "We need another $1,000 on your down payment." Or "There was a problem with the paperwork." Or "Turns out your credit isn't as good as you said, so we have to finance you at a higher interest rate."

This is a classic swindle called the spot delivery scam, also known as yo-yo financing.

How the spot delivery scam works

Spot delivery is most commonly used on inexperienced buyers or those with bad credit. The dealer negotiates a reasonable deal and lets you take delivery of the car "on the spot," before the financing is finalized. Some dealers will complete the deal with approved financing and then call you anyway. The hope is that after a few days in your new car, you'll be reluctant to give it up -- even if that means you have to pay more money.

Dealers will come up with a variety of stories as to why you should give them more money. They may claim it was an innocent mistake. The sales rep might say he'll be fired or that the money will come out of his paycheck. If you resist, they may turn to bullying -- threatening to report the car as stolen or accusing you of trying to swindle them.

Remember, no matter what excuse the dealer comes up with, this is nothing but a money grab. Any dealer unscrupulous enough to pull the spot delivery scam will have no problem lying to pull it off.

What to Do If Your Dealer Tries to Pull the Spot Delivery Scam

Don't panic, don't rush over to the dealership, and don't pay a dime more than what you originally agreed to.

Laws vary from state to state, but generally speaking, either you bought the car or you didn't. If you did buy the car -- you have a signed, legally-binding contract and the car is registered and insured in your name -- then the dealer must honor its terms. If you did not buy the car -- a true spot delivery without approved financing or transfer of ownership -- you can return if for a refund of your deposit and a return of your trade-in. It doesn't matter if you've been driving the new car; the dealer essentially loaned it to you. If you put miles and wear-and-tear on it, that's the dealership's problem, not yours.

Get Legal Advice

Call a lawyer right away, preferably one who specializes in dealership law. Make two copies of all the paperwork relating to the sale (including the registration) and send one copy to your attorney. She will be able to tell you if you have a legally binding contract; if so, she can call the dealership on your behalf and tell them to buzz off.

Don't be put off by the potential cost of a lawyer. Many will provide a free initial consultation, and may even offer to look over your paperwork. A call or letter to your dealership from a lawyer will usually put a quick end to the scam and save you hours of time and aggravation. And in some cases, you may be entitled to collect legal fees and punitive damages. If you don't want to call a lawyer, your state Attorney General's office may be able to provide you with guidelines outlining your legal rights.

Try to Resolve It Over the Phone

Call your dealer and ask exactly what the problem is. If they say there is something wrong with the paperwork, ask them what it is. If they say that your financing wasn't approved, ask them for the name and the phone number of the bank that turned you down, then call to verify. (If they won't give you this information, chances are there was no denial.) If they can't give you a concrete reason to come back, there probably isn't one. Remember, if your lawyer says the contract is legally binding and the registration is in your name, the car is yours -- you can tell the dealership to get lost, or refer them to your attorney.

Return to the Dealer

If you have to return to the dealership, go on a weekday when the banks are open and your lawyer is in his office. Clean your personal belongings out of the car and ask a friend to follow you down to the dealership so that you can leave the new car there if you have to. Along with the original paperwork, keep one extra copy secured on your person and leave another at home. Plan to spend time; the dealer may drag on the proceedings in an attempt to wear you down.

When you get to the dealership, do not offer or agree to pay any more money. Tell the dealer that there are only two acceptable outcomes: Either you will take the car home on the terms to which you originally agreed, or you will return the car for a full refund of your deposit and a return of your trade. This is your mantra; keep repeating it. If the dealer says your contract obligates you to pay a higher rate, call your lawyer right away.

Once the dealer realizes that you have talked to an attorney, know your rights, and are prepared to return the car, he may be willing to complete the contract under the agreed terms. Do not accept a new contract. Check the completed contract against your copy to be sure it's the same document. If anything seems amiss, call your lawyer right away.

If the dealer suddenly offers you an even better deal, i.e. lower payments or a lower rate than originally promised, be very wary -- you may be setting yourself up for a follow-on scam, or the dealer may be covering for the activity they know is illegal. Call your lawyer for advice.

If the dealer will not complete your contract, tell her you wish to return the car for a refund of your deposit and a return of your trade. If the dealer says she no longer has your old car, you are entitled to its value -- in most states, either the amount at which she valued the car or the fair market value, whichever is higher.

Do not give up the keys to the new car until you have the money in hand -- cash, a check, or proof that the funds were returned to your credit or debit card. Call the bank to be sure. If the dealer says it will take a couple of days to process the check, tell him you will return the car when the check is ready. Some dealers will try to charge you a "restocking fee" or claim they can't refund the sales tax; this is illegal. If the dealer tries to short-change you or seize the car without returning your money, call your lawyer right away.

Tell the World

No matter the outcome, it's important to let as many people as possible know what happened. File a complaint with the Better Business Bureau and your state Attorney General's office. Write a letter to your car's manufacturer (look for the Customer Service link on their web page). Tweet, Facebook, and write about it on your blog (stick to the facts, no libelous venting). You may be able to help others avoid this scam -- and if the dealership feels enough negative pressure, maybe they'll stop trying to pull it.

How to avoid the spot delivery scam

Arrange your financing outside of the dealership -- i.e. from a bank, credit union, or relative. If you know you have bad credit, be wary of low financing rates or deals that sound too good to be true. Look for "factory-backed" finance rates -- TV and radio ads that say "1.9% financing at your participating Toyota dealership." Be sure your financing is going through the automaker's credit arm (i.e. Chrysler Credit or GMAC). If it's a third-party bank, or the rate is not available at other franchises, be wary.

Do not sign a contract unless it is completely filled out. Beware of contracts stamped or titled "conditional" or those that have "conditional delivery" clauses.

Never, ever, ever drive your new car away from the dealership until the loan is finalized, you have a fully filled out and signed contract, and the car is registered and insured in your name.

Note that some dealerships will do legitimate "conditional deliveries" before financing is approved, but for the consumer, it's nearly impossible to tell beforehand whether the dealer is on the up-and-up or if a scam is on the horizon. Your best bet: Don't take the car home until you're sure it's yours.