Legal action on “yo-yo” car leasing

The Federal Trade Commission (FTC) has brought charges against nine Los Angeles-area auto dealerships and their owners in its first ever legal action aimed at tackling so-called “yo-yo” financing tactics, which it claims are unfair and coercive.

The regulator has filed an action in a California court and is seeking to end the practices and return money to consumers. “Yo-Yo” financing occurs when dealers attempt to coerce consumers who have signed contracts and driven off the dealership lots into accepting a different deal.

The FTC also alleges that the defendants put extra, unauthorized charges for “add-ons,” or aftermarket products and services, into car deals financed by consumers.

“The car-buying process is a two-way street,” said Jessica Rich, director of the FTC’s bureau of consumer protection. “The FTC expects dealers to honor their contractual obligations, and will pursue those who use yo-yo financing tactics and pack unwanted costly add-ons onto consumers’ contracts.”

Phony finance

The FTC alleges the auto dealerships enticed consumers, particularly financially distressed and non-English speaking buyers, into their dealerships with adverts that made an array of misleading claims. These included claiming that vehicles are generally available for the advertised terms and that consumers can buy vehicles for low prices, finance with low monthly payments, or make low down payments. They also allegedly claimed consumers were buying a car, when in fact they were lease offers, and that the dealership would pay off consumers’ trade-in vehicles, despite the fact that consumers ultimately are responsible for paying off any amount owed on the trade-in.

The FTC alleges that the defendants used phony online reviews to tout their dealerships and discredit negative reviews that highlighted their unlawful practices.

Add-on charges

As part of the sales and financing process, the dealerships offered add-ons such as extended warranties, guaranteed auto protection (GAP), and maintenance or service plans and, the FTC alleges, charged for these without consumers’ consent or by falsely claiming the products were required or were free.

The FTC also alleges that, in some instances after the consumers have signed contracts, they were told they had to sign a new contract with different terms, or the dealers claimed the contracts were cancelled and said, incorrectly, that they were entitled to keep consumers’ down payments or trade-ins. When consumers requested compliance with the terms of the contract or refused the demands, the dealers, in some instances, falsely claimed that consumers will be liable for legal action, including lawsuits, repossession, or criminal arrest for a stolen vehicle.

The case will be decided by the court.