With traditional indirect auto lending, the dealership serves as a middleman pairing a customer seeking credit with a lender looking for customers. The retailer extends the customer credit based on terms it expects would be amenable to a partner lender, then immediately sells the contract to that lender, perhaps receiving an incentive payment as well.
But if the retailer lacks confirmation a lender will purchase the loan, it might perform a spot delivery — permitting the customer to leave with the vehicle with the understanding that the deal might need to change or be called off if a taker for the loan at the terms discussed cannot be found.
The consumer groups say customers “overwhelmingly” don’t realize this caveat exists.
“The fundamental misrepresentation that the deal is complete … forces consumers into a ‘yo-yo’ scenario where they are called back to the dealership lot several times with demands to provide more information, potentially pay more upfront, and to change financing terms that were set forth and agreed to in the original contract, or to give up the car completely,” they wrote in a May 31 petition to the FTC.
The consumer groups cited lawsuits and arbitration demands against dealerships from customers related to spot delivery situations, and the National Association of Consumer Advocates added three other similar disputes in a follow-up public comment.
Unconfirmed financial terms described in a spot delivery deal undercut the Truth in Lending Act’s goal of a customer making informed comparisons of competing credit offers, the petitioners argued.
“The evisceration of disclosures and transparency of consumer credit transactions required under [the Truth in Lending Act] is one of the most fundamental and harmful consequences of the conduct this proposal seeks to address,” they wrote.
Odometer Act and Equal Credit Opportunity Act violations also are possible under spot deliveries, the petitioners said.
Miller said case law rejects the Odometer Act and Truth in Lending Act arguments. Customers understand that spot delivery deals are contingency-based, he said, and that they, not the dealer, are the ones asking for early access to the vehicle.
“What appears to be at the heart of the Petitioners’ concern is that many American automotive consumers, for a variety of valid reasons, need or want to drive away in a car that they wish to purchase before all financing contingencies are final,” Miller wrote. “The market has rationally addressed this consumer need by creating and using conditional contracts — that is, contracts that are final in all respects, save for final approval of the terms from a third-party finance source. The Petitioners assert that a conditional contract is, in and of itself, somehow harmful to consumers when the condition does not — for whatever reason — occur. That is not only unsupported, but it also ignores the utility and ubiquity of such agreements.”
NADA pointed out the FTC’s 2022 plan to regulate auto dealerships already contains language meant to crack down on “so-called yo-yo financing,” Miller said. NADA opposes those draft regulations too, but their existence makes the new petition redundant, he added.
The FTC’s proposal would classify as unfair or deceptive any dealership “misrepresentation, expressly or by implication” that states a “transaction is final or binding on all parties.” Keeping down payments or trade-in “charging fees, or initiating legal process or any action if a transaction is not finalized or if the consumer does not wish to engage in a transaction” would also be classified as unfair or deceptive.
