Robinson, a retired LTV electrician from Brook Park, had bought a few cars in his day, and this deal went as smoothly as any of them. The salesman knocked a bit off the sticker price, and the assistant manager told him he qualified for Honda's lowest financing -- 3.9 percent. Robinson inked the deal, and Danielle pulled out of the lot beaming.
The next day, Robinson got the call.
"They said, Your credit isn't good, and we can't get your interest rate. You'll have to pay a higher one," Ganley told him. His rate shot to 4.9 percent, and his financing fee jumped from $1,666 to $2,109. He could agree to the new terms or return the car immediately.
Robinson couldn't believe what he was hearing.
"That seems like a strange situation -- to give you the keys to the car, let you take it home, and then figure out the financing later," he says. "Would you give someone 15 or 20 thousand dollars' worth of merchandise and let them take it home, and then see if they can pay for it later?"
Robinson had just received a crash course in "yo-yo" financing. Though not new, the practice is on the rise throughout the U.S. -- including the Cleveland area, says the Better Business Bureau.
Here's how it typically works: Within a few days of a sale, the dealer will call to say that the original financing terms, agreed to by both parties, were incorrect. Dealers know that the buyer is more likely to cough up the extra cash than to put up a fight.
"Asking a consumer to return a car after they've taken it home is like asking a kid to return a lollipop after taking a couple of licks," says David Weiss, president of the Greater Cleveland Better Business Bureau.
Robinson, too, was not about to return Danielle's Civic. He knew he had a case against Ganley. When he bought the car, he had brought his credit report to the dealership, and Ganley's assistant manager ran a credit check while he was there. Where could things have gone wrong?
Robinson filed complaints with the BBB and the Ohio attorney general's office, which referred him to the Automotive Consumer Action Program (AUTOCAP), a dispute-resolution service. Because Robinson's credit score was confirmed and his financing was through Honda itself, the dealer should have known the correct rate, the attorney general argued. Ganley eventually dropped the rate increase.
"When a person drives off with a car, they have every right to keep the car and the contract they signed," says Phillip Althouse, a Cleveland attorney who's handled numerous yo-yo cases.
The problem centers around what's known as a "spot-delivery" or "conditional-delivery" agreement, which dealers tend to use with customers who have dubious credit. The fine print allows them to increase the interest rate even after the papers are signed.
But spot delivery can also be used to artificially raise the price for reasons unrelated to the rate. "The first offer allegedly fails, and usually it's because someone isn't getting enough money," says Althouse. By raising the rate, the dealer can pad his profit.
Dave, a computer-company employee from Chagrin Falls, traded in his Chrysler minivan at Ganley Parma Imports. He signed a spot-delivery agreement, left a down payment of $1,200, and drove off in a new blue Hyundai Sonata. In the days that followed, he says, Ganley had 14 financing companies run his credit, and each check lowered his overall score. A month after the sale, Ganley called to say that his financing had fallen through.
Dave, who spoke for this story on the condition that his last name not be used, took his grievance to AUTOCAP, which sided with the dealer. He returned the Sonata and took back his van. In that way, he was among the lucky ones.
A lot can happen in the days between the time customers drive away and when they get the yo-yo call. In some cases, dealers may decide that a car purchased as new can no longer be returned as new. "The minute it's off the lot, there're all kinds of liability issues," Weiss says.
By the time Dave's financing fell through, he had logged 500 miles in the Hyundai. "I thought, 'Holy cow, what if I'd had an accident?'"
Another man, who declined to give his name, is battling an East Side dealership that canceled his loan agreement and resold his trade-in; now he's stuck with the new car and the higher rate. His predicament is not uncommon, say Weiss and Althouse.
According to Gary Adams, president of the Greater Cleveland Automobile Dealers' Association, all buyers drive away with no more than a tentative agreement.
"Everyone that takes a car from this dealership -- and all dealerships -- signs a [spot] delivery slip," says Kathy Green, Ganley Pontiac Honda's customer-service rep.
Securing financing, she says, can take as little as a few minutes or as long as several days, depending on the customer, time of day, and other factors. So sometimes dealers get the "initial" financing rate wrong. The problem is that customers are rarely aware that the agreed-upon rate isn't final.
Whether or not this practice is ethical, it may not always be legal, Althouse says. It depends on the relationship between the various documents signed to finalize the deal and whether the financing is handled by the dealership or farmed out to a third party. In other words, it's caught up in a web of paperwork that's too difficult for anyone but a lawyer to untangle. That's what dealers are betting on.
Buyers can avoid yo-yo financing by getting loans through a bank or credit union. Before financing with a dealer, buyers should check its records with the Better Business Bureau and the attorney general.
For Robert Robinson and Danielle, there is another way around the yo-yo.
"I'll never sign a spot-delivery slip again," he says.
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