Recommendation 1: Ban dealer interest rate markups, and require compensation that is not based in the interest rate or other terms of the loan. No one disputes that car dealers should be paid for the work they do to finance a car. However, there should be no incentive for a dealer to finance car buyers in more expensive loans than that for which they would otherwise qualify. This change would shift the incentive from selling the loan with the highest interest rate to finding the best deal for the consumer.
Recommendation 2: Prohibit yo-yo scams and ensure more meaningful enforcement to prevent them. The dealer is in a better position to know whether a bank or finance company is likely to take the loan from the dealer. If the dealer takes the risk of letting the consumer leave with the car, then the dealer should have to abide by the terms of the deal absent fraud on the part of the consumer. At the very least, the dealer should be barred from selling the consumer’s trade-in and should hold the down payment in escrow while the financing in pending, but this still puts the consumer in a position where the dealer has immense leverage.
Recommendation 3: Provide a consistent and transparent means of presenting the cost of the vehicle, all fees, and add-on product sales. It should also be explicit that the purchase of add-ons is completely optional and separate from both the purchase and the financing of the vehicle. There should be clear disclosure of how each add-on product impacts the overall price of the vehicle, not just the monthly payment. Ideally this would be in documentation distinct and separate from the paperwork involved with the vehicle purchase or financing.