Yo-yo scams are possible because of the pervasive practice of conditioning finance contracts on the dealer’s decision to accept, or reject, purchase offers from third parties.
Deal or No Deal: How Yo-Yo Scams Rig the Game against Car Buyers
Published: April 4, 2012
How Dealers Rig the Game
Watch this video to learn more about yo-yo scams and the latest paper.
Throughout 2011, the Federal Trade Commission convened a series of roundtables to explore abusive practices in the auto lending market. One abuse that received particular attention was the “yo-yo scam". The yo-yo scam occurs when a dealer leads the car buyer to believe that the financing is final. The dealer then lures the consumer back to the dealership, claiming the financing needs to be finalized, and pressures the consumer to sign a new financing contract with a higher interest rate or other less favorable terms.
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This latest report by CRL provides data on the prevalence of yo-yo scams, insight into how yo-yo scams are perpetrated, and identifies which consumers are most likely to be targeted. The paper is composed of survey responses from individuals from five professional organizations serving over 2,100 clients with auto finance-related issues.
Their responses led to the following findings (click on each one to find out more):
Finding 1: Respondents reported that, in their experience, car dealers commonly target consumers with poor or no credit standing for yo-yo scams.
Figure 1: Demographics of Consumers Experiencing Yo-Yo Scams
Finding 2: Respondents observed that half of the consumers they served who had experienced a yo-yo scam had trouble reclaiming their down payment or trade-in vehicle, or had the dealer threaten legal action against them if the car was not returned.
Figure 2: Consumers Experiencing High-Pressure Tactics in Yo-Yo Scams
Finding 3: Respondents reported that a majority of the consumers involved in a yo-yo scam ended up signing a second financing contract for the same car, and at a higher interest rate.
Figure 3: Outcomes of Yo-yo Scams