Can a dealership cancel my deal due to a spot delivery clause?
One of the most common questions this office receives from South Florida consumers is whether a dealership can cancel their financing agreement after they’ve taken delivery of the vehicle. Many consumers are surprised to find out that they entered into a “spot” delivery agreement which allows a dealership to unwind the transaction if they are unable to assign the loan to a third party lender.
What is a "spot" delivery agreement?
A spot delivery transaction, also known as a “spot delivery” or “yo-yo financing,” is a type of car sale where a buyer takes possession of a vehicle from a dealership- on the spot- before the financing terms are finalized. In this arrangement, the buyer typically signs a conditional sales contract or a similar document that allows them to drive the car off the lot immediately, believing they have been approved for financing.
However, the completion of the financing is not guaranteed at this stage. The completion of the transaction is conditioned upon the dealership assigning the financing agreement to a third party lender in a certain amount of time. The dealership will usually try to find a lender to accept the buyer’s financing application on the agreed-upon terms.
This situation can be frustrating and confusing for the buyer, as they may have already become emotionally attached to the car and arranged insurance and other associated costs.
A sample spot delivery agreement is appended below so consumers know what to look for.
Are spot delivery agreements legal?
In Florida, so long as the spot delivery agreement is set forth within the four corners of the financing agreement and not in an extraneous document, such an arrangement is perfectly legal. The spot delivery agreement must identify the amount of days within which the dealership can assign the loan to a third party lender though.
Less than scrupulous dealerships will often use the spot-delivery clause as a means to dupe consumers into loans on worse terms or to defraud them of their down payment. If the dealer cannot secure financing on the agreed-upon terms, they may ask the buyer to return the vehicle, renegotiate the terms, or potentially accept less favorable financing conditions. This is known as a “yo-yo scam.” Under no circumstance is a consumer obligated to proceed with the new financing terms if they don’t want to. They are free to walk away from the transaction if the terms are not favorable.
What about the trade-in?
As discussed in a prior blog post, a car dealership has TEN working days to payoff a trade-in in Florida. However, many dealerships will argue that the payoff must occur once they acquire ownership of the vehicle. In a spot-delivery transaction, the entire transaction is made contingent upon the loan being assigned to a third party lender. In the event the loan is not assigned, the dealership does not acquire ownership of the trade-in and has no obligation to complete the payoff.
Whether this is an accurate representation of the law remains to be seen as there is no definitive court decision addressing the topic. However, a consumer should be aware that until the payoff is completed, it is the consumer’s obligation to maintain their financial obligations on their trade-in vehicle. The subsequent trade-in arrangement does not relieve the consumer from their contractual obligations. In the event the payoff amount is reduced before the dealership completes the payoff, in most cases, the consumer would be entitled to a reimbursement of any amounts paid towards the trade-in vehicle.
What can a consumer do to avoid a yo-yo scam?
To protect yourself as a car buyer in Florida or any other state, it’s crucial to take the following precautions:
- Carefully read and understand all documents before signing anything.
- Verify the financing terms, interest rates, and loan approval with the lender directly if possible.
- Avoid taking possession of the vehicle until the financing is fully approved and the terms are clear.
- Be wary of high-pressure sales tactics or situations where the dealer rushes you into making a decision.
- Obtain your own financing! The easiest way to avoid a yo-yo situation is to obtain your own financing from your preferred lender.
Where can I learn more about yo-yo scams?
Attorney Joshua Feygin was recently interviewed by CarEdge and went into depth on the sudden rise of yo-yo claims in his practice. Click below to hear more on the topic. In addition, the Federal Trade Commission has an article discussing “yo-yo” scams as well which can be accessed HERE.
Think you've been taken for a ride in a yo-yo scam?
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