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The Corporate Observer A Publication by Attorneys Devoted to Protecting Consumer Rights

Yo-Yo Financing: A New Predatory Lending Practice For Consumers To Watch Out For

Posted in Banks and Financial Services, Consumer Protection

It’s not often I come across a “new” scam. So when I heard about something called “yo-yo financing,” I was intrigued.  If you ever plan on purchasing a car, you need to know about this scam so that you can make sure it won’t happen to you.  Getting a new (or a used “new”) car is an exciting event – you do research, consider options, test drive and when you finally find the right car your instinct is to jump on in and drive it home.  Don’t think for a minute that there isn’t a less-than-upstanding car salesman who isn’t ready to take advantage of your excitement.

One way that car salesman might take advantage of you is by targeting you with a trick of the trade called “yo-yo financing.”  Essentially, a dealer promises a consumer one interest rate when a consumer is deciding whether to buy the car in the lot – without mentioning that the interest rate is “conditional” or otherwise dependent on a credit check.  So the unsuspecting consumer signs the contract, drives home the car and later is told, “actually the interest rate is much higher than what we told you. Sorry.”  Too late for the consumer!  Dealer manipulation of the interest rate after the individual signs the contract, according to an article in USA Today, is a scam known as “yo-yo financing.  The fear for drivers is that they are being scammed right under their noses, but stand defenseless because they lack the knowledge or resources to prevent it.

Car dealerships manipulate consumers by promising them low interest rates on cars, enticing the consumers under false pretenses to buy a car from the that dealer, only to find those low interest rates do not appear as promised.

There is some hope for ending this type of scam.  The Federal Trade Commission (FTC) is considering the creation of new laws to combat car dealers’ exploitative practices, according to USA Today.  Congress has also pursued legislation that would combat illegal and manipulative auto loan practices.

Another scam is the last thing this country needs as we begin to recover from the global recession’s effects.  Recently we’ve seen signs of economic strength with more consumers taking on auto-loans to purchase a new car.  According to this Huffington Post article, consumer auto and student loan debt increased significantly in the last months of 2012.  On the contrary, credit card debt decreased.  That is to say, more consumers are buying durable products and services they know will help them navigate life in the long-run.  Dealerships are working to entice people back to their lots, but using “yo-yo” financing to do so is dishonest to consumers.

The government already forced big banks to pay American homeowners that bought houses under false pretenses.  Is it time to follow suit and crack down on car dealerships that deceive consumers who bought cars thinking their monthly payment would be one amount and later find out it is much more?  Like homeowners who faced foreclosure, many of these auto owners may see themselves lose those cars to repossession or bankruptcy.  A better approach is prevention: now is the time to end this scam, before another consumer falls victim to this predatory lending practice.

Have you been the victim of financial fraud or a scam? Call Berk Law at (202) 232-7550 to discuss your legal rights.