In the typical Yo-Yo Scam, a car dealership tells the consumer that she is “all set” and that her credit application has been approved. She drives home in her new (or pre-owned) car and shows it off her to her friends, family, and co-workers. About a week later, the car dealer calls and says “There is a problem with the bank. Your application was not approved.”
Frequently, the dealer will make the consumer sign a new contract with less favorable terms. She might need a larger down payment or have to agree to a higher interest rate. If the consumer doesn’t agree, then the dealer will tell them that they have to bring the car back. If the consumer refuses, then the dealer might threaten to report the car stolen. In some cases, they literally take the car from the consumer’s driveway in the middle of the night.
We call this type of auto dealer fraud a “Yo-Yo”, because the dealership pulls on the string and takes the car back.
Yo-Yo scams not only harm consumers, they also violate the law. When car dealerships tell a consumer that their credit was not approved, they are ignoring the structure of the credit transaction. Most cars are purchased under retail installment contracts, and the “creditor” under the contract is the car dealer. Dealerships usually don’t want to collect the monthly payments, because they want their cash right away. So, they “sell” the contracts to a bank or a finance company, who pays the dealership in return for the right to collect the monthly payments with interest.
Usually, the dealership gets preapproval from the bank before they sell the car. Sometimes, the bank will refuse to accept assignment. For example, if the bank discovers that the dealeship engaged in credit appliation fraud, they are not going to want to fund the deal. When something goes wrong between the dealership and the finance company, the dealership tries to get the car back.
Car dealers violate many state and federal laws when they sell a car to a consumer and then try to change the deal or they make the consumer give the car back.Consumers victimized by this scam can sue the dealership for damages and attorney’s fees.
How to Protect Yourself: Consumers should always keep their contract documents in a safe place. If the contract is left in the glove compartment, a consumer will have trouble proving their case if the dealer takes the car back. Consumers who have been victimized by this scam should also contact a lawyer right away.