Have you noticed the upsurge in publicity concerning so-called “yo-yo sales”? About how oppressive and damaging they are for consumers? Do you think it’s a sign that these problems are suddenly multiplying? It is not.
This publicity is the result of a campaign by consumer advocates to influence the Federal Trade Commission. The FTC is in the midst of examining what, if anything, it is going to do with respect to a number of auto dealer issues, including spot delivery. Spot delivery was a major topic at the three FTC roundtables on dealer practices that took place last year. It was apparent that the proponents of regulation or prohibition of spot delivery were justifying their positions with stale, anecdotal evidence. To learn more about spot delivery practices, the FTC has served “civil investigative demands” (which are really administrative subpoenas) seeking information on dealers around the country. The expanded negative publicity you may be seeing about “yo-yo” sales is simply part of the campaign to misdirect public emotions to raise the pressure on the FTC to take action with respect to spot delivery.
At the outset, we must draw a distinction between so-called yo-yo sales and spot delivery, a distinction that was drawn at the FTC roundtables. The phrase “yo-yo sale” implies a delivery of a vehicle with no intention to assign the retail installment sale contract on the terms agreed between the dealer and the customer; to force the customer to return and change the deal to enhance the dealer’s profit. That is different than the practice of spot delivering vehicles that involves delivering a vehicle prior to the completion of payment. Spot deliveries are the rule in the car business. Yo-yo sales are not. In fact, the claim that yo-yo sales are widespread is a myth based on isolated wrongdoing by scofflaws. No reputable dealer who wishes to have a future in the business is going to put its cars out on the street with no hope of having them financed on the terms on which they were delivered.
Nevertheless, so-called consumer advocates are banging the yo-yo sale drum non-stop, generating publicity about abusive spot deliveries. You do not want your dealership identified as one that engages in abusive spot delivery practices.
So how can you avoid this?
- Have a solid process for qualifying candidates for spot delivery. Know everything you should and are required to know about a customer before making the decision to spot deliver a vehicle. Know that the terms of the transaction fit the acceptance parameters of the lender to whom you wish to assign the RISC. It may be tempting late on a weekend in a tough month to put a car on the street with the hope that someone will “buy” the contract. Those are often the deals that lead to the most problems. Have a policy – spot deliver a vehicle only if you expect that assignment of the contract will be approved on the terms on which the vehicle was delivered.
- Make sure that dealership spot decision-makers are qualified and trained. Who is making the spot decisions? Does each manager understand your policy? Does each manager know the approval criteria for the contemplated assignees?
- Have a process for clear disclosure to your customer of the conditional nature of the sale. In almost every spot delivery case, the consumer will contend that the dealer’s representative said that “you have been approved” and “your sale is final”. Have a script to be followed in every spot delivery that advises the customer that the completion of the deal is subject to approval by a finance source that will take assignment of the contract.
- Make sure that your paperwork is clear and in compliance with state law. Virginia law requires specific language in the buyer’s order concerning the dealer’s right to rescind a transaction. That provision should be clear, conspicuous, and exactly as the Virginia Code provides.
- Document why the spot delivery decision was appropriate. Is the deal file clear about the basis of the decision to spot deliver the vehicle? More importantly, will your deal file be clear on the reason a year or two later when a lawsuit is actually filed and it is time to establish your defense? When a customer charges that your dealership engaged in abusive spot delivery tactics, you must be prepared to defend by showing the reasons justifying the delivery.
- Document attempts to obtain approval. One of the common charges by plaintiffs’ lawyers is that a dealer just didn’t try very hard to get the deal approved at the rate or at the terms on which delivery took place. They charge that the dealer wanted the customer to come back so that it could increase the rate or add elements to the contract that will increase the dealer’s profit. That is almost always nonsense, but in a lawsuit you will have to prove that. Make sure that the attempts to submit the deal and rehash the deal, where appropriate, are adequately documented in the deal file.
- Document the deal revisions necessary for a replacement contract. In the majority of cases, deals can be saved with a change in the terms. Overwhelmingly, those changes in terms will be to the detriment of the dealer. Make sure that your deal file reflects what you had to do to satisfy the finance source and the customer.
- Be clear that the replacement contract is voluntary. Have a script that F&I personnel can use to sell the benefits of a replacement contract. A common claim in spot delivery cases is that customers were told that they were bound to the contract even though the dealer rescinded it. Have a script clearly explaining the customer’s choices and the benefits of working with the dealer on the alternate deal terms.
- Follow the terms of the rescission. If a deal is not approved by a potential assignee, follow the terms of the rescission provision in the buyer’s order carefully. Shortcutting the requirements will only give the consumer grounds for a legal action.
- If you must retake a vehicle involuntarily, do so in compliance with the law. Dealers may face a situation where a customer will not cooperate in returning a vehicle. A customer may even try to hide the vehicle. Virginia law requires that any repossession activity must take place without a breach of the peace. Repossession agents know the lines. Emphasize to them that you do not want them crossing those lines.
- Return the trade and the downpayment. If you must take back the car you delivered, what you are doing is “rescinding” the contract. In other words, you are returning the dealership and the buyer to the beginning as if the transaction had not even occurred, to the extent possible. That means that not only must the customer give back the car you delivered, you must give back the trade and any downpayment. If you do not do that, or you cannot do that, then you are not in a position to “rescind” the transaction. If that means holding the customer’s trade until the deal is complete, that is what you must do. Establish a policy that the dealership will hold trades until deals are complete in every case.
- Do not charge for use or for mileage. Again, if you take a car back, you are rescinding the transaction. It may be the customer’s fault for giving you faulty information. It may simply have been a mistake by dealer personnel. It does not matter. If you are taking the transaction back to the beginning, that should be done without imposition of fees