How car buyers can become entrapped in what's known as a 'yo-yo' sale
A MARTÍNEZ, HOST:
Cars are the second-biggest purchase most Americans ever make. But some car dealers engage in a practice called a yo-yo car sale that can entrap people in bad deals. Right now, the Federal Trade Commission is drafting new rules for car dealers, so it has a chance to crack down. NPR's Chris Arnold has been investigating all this. He joins us now. So yo, Chris, what is a yo-yo car sale?
CHRIS ARNOLD, BYLINE: (Laughter) Nice one. A yo-yo car sale is called that because after you buy a car, the dealer pulls you back like a yo-yo and changes the deal. And this can happen when you finance a car through the dealership. And here's how it works. So when you buy a car, you sign all the paperwork. The dealer hands you the keys. And you drive off. And you know that feeling when you're like, this is my car now, you know? Wow. You've probably felt that.
MARTÍNEZ: Oh, yeah. I mean, it's an awesome feeling because you got something new, and it's yours.
ARNOLD: Right? So that is how Kaitlyn Arland (ph) felt, too. She's a car buyer that I spoke to. And she's an Army service member stationed at Fort Riley in Kansas. She was 19 years old, and she bought a new, little Kia sedan.
KAITLYN ARLAND: Oh, I was so excited 'cause I remember asking the gentleman, like, I'm good to go? And he was like, you're good to go. How do you feel? And I was like, I feel great.
ARNOLD: But a lot of the time, in the fine print, car dealers reserve the right to cancel the sale if the dealer has trouble with the car loan financing, even after the fact on their end. And this can be days, even weeks later after you drive off the lot, and you've shown the car to your friends and your family. And this happened to Arland. The dealer called her back and said, oh, the financing has fallen through. You need to come back and make a bigger down payment. They wanted $2,000.
ARLAND: I straight up told them, I'm sorry. I don't have $2,000. They proceeded to ask me if I had a credit card that I could pay it on. And I said, I'm sorry. I'm not comfortable paying $2,000 on my credit card. Financially, like, I can't do it. I'm sorry.
ARNOLD: Sometimes, at this point, the dealer will tell you, you know, oh, it's too late to get your trade-in car back. We already sold it. So people can end up really over a barrel and get pushed into worse deals.
MARTÍNEZ: Oh, my God. People make plans when they got a new car. I mean, they structure their lives based on the new cars. OK. So what happens, though, if the car buyer pushes back and says, basically, look. Hey, you sold me the car, and I'm not going to bring it back?
ARNOLD: Well, people try that, as you might imagine. But there can be some pretty bad outcomes. The dealer will often just repossess the car. And I talked to two different people where the dealership actually reported the car stolen. And that's what happened to Kaitlyn Arland.
ARLAND: So the brigade commander reached out to my commander and said that the dealership said that I had stolen this car. I was already new to the unit, and I had just found out I was pregnant. So I was already super worried about what everyone was thinking about me. And I was bawling my eyes out in front of my entire unit.
ARNOLD: And she was worried this was going to mess up her career in the military. And after all of that, the dealer took the car back, and she didn't get a car.
MARTÍNEZ: Wow. Now, I know you dug into this, Chris, to find out how often it happens. And what'd you find?
ARNOLD: Right. So we surveyed consumer attorneys around the country who deal with auto cases. And just a few dozen attorneys say that they've gotten calls from nearly 900 car buyers in just the past year. So this appears to be happening pretty regularly. And they said half the time, the car buyer is told it's too late to get their trade-in vehicle back, and people end up feeling really stuck.
MARTÍNEZ: What are the car dealers saying?
ARNOLD: Some dealers say the current system works really well. Customers can drive off in a car right away, which they like, even if the financing's not finalized on the dealer's end. The industry says changing the rules would cause delays. And they say dealers don't want to have to call the customer back and cancel the sale or change the deal. Consumer attorneys say, though, that some dealers use the current system to take advantage of car buyers and sometimes with really bad outcomes. We talked to one car buyer who actually got arrested when the car was reported stolen and spent two nights in jail.
MARTÍNEZ: So, Chris, is there anything the FTC can actually do to stop that from happening?
ARNOLD: Well, it appears so. We looked at the state of Maryland, which passed a law in 2015. And we got complaint data from the AG's office and found that complaints fell by half after the law was passed. So it appears to be really making a difference.
MARTÍNEZ: That's NPR's Chris Arnold. Chris, thanks a lot.
ARNOLD: Thanks, A. Transcript provided by NPR, Copyright NPR.