Center for Responsible Lending
When it comes to purchasing and financing a vehicle, Black and Latino consumers – more often than other racial or ethnic groups – are frequently targets of deceptive advertising and abusive financing practices.
In recent days, two law enforcement agencies have acted to curb yo-yo scams and other abusive and deceptive practices of auto dealer groups. The separate actions link a shared consumer abuse that occurs from Los Angeles to New York.
A settlement announced in mid-March between the Federal Trade Commission and Sage Automotive, which has dealers throughout the Los Angeles area, requires Sage to stop yo-yo scams and deceptive financing and advertising practices. Sage will also pay more than $3.6 million to be returned to consumers who were harmed by these illegal actions. This enforcement action is the first-time that the FTC has taken action on yo-yo scams.
Yo-yo scam occurs when a car dealer sends a consumer home thinking that the financing is final, but then later tells the consumer that he or she as to agree to a new financing contract or return the car. Often, dealers tell the consumer that the down payment is non-refundable, the car traded-in has been sold and/or threatens to have the consumer prosecuted for theft if the car is not returned.
According to FTC’s complaint, Sage frequently engaged in yo-yo scams, falsely told consumers that their money or trade-ins would not be returned and threatened consumers with criminal prosecution or repossession if they did not sign new, more expensive finance contracts than they were initially promised.
By targeting financially challenged consumers and consumers with limited English language skills with false promises of low prices, low down payments and low monthly payments, Sage also packed unauthorized add-on products into contracts. The end result for many customers was that they drove off with a more costly financing contract than originally understood.
The FTC stated in filing the complaint, “The car-buying process is a two-way street. 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.”
“These practices are not new, but the increased regulatory attention is new and is very welcome,” noted Chris Kukla, an EVP with the Center for Responsible Lending. “We urge the FTC to continue to use their authority to create a level playing field in the auto sales and lending market. This will ensure that legitimate dealers can fairly compete for business and that consumers will be treated fairly and honestly.”
On March 16, the New York City Department of Consumer Affairs (DCA) announced charges against Queens-based Major World. Major World’s dealerships and its principals are charged with using deceptive and illegal practices to profit from low-income and non-English speaking consumers. These actions violate the city’s own Consumer Protection Law.
“Our city’s working families, so many of whom are immigrants and often struggle to make ends meet, rely on their cars to go to work and school,” said DCA Commissioner Lorelei Salas. “Buying that car is usually one of the largest purchases a family makes and it sickens me that Major World, who claims to treat its customers like family, so deceptively traps hardworking New Yorkers into auto loans they can’t afford. Here in New York City, we are leveraging all the tools we have to curb this burgeoning national crisis.”
Major World’s deception includes:
• Advertising deceptively to lure vulnerable consumers;
• Inflating the price with non-existent accessories;
• Falsifying the consumer credit applications; and
• Failing to:
– Disclose and even concealing financing terms;
– Provide contracts in Spanish after negotiating in Spanish; and
– Sell roadworthy vehicles
DCA is seeking revocation of Major World’s licenses to operate second-hand automobile dealerships in New York City and nearly $2 million in restitution and fines from Major World on behalf of 25 known consumers who were harmed by its deceptive and unlawful practices. Further, the agency believes that given Major World’s footprint in the area, the small number of consumers who may have been harmed may be a fraction of the number of people likely harmed by their predatory business practices.
“These recent actions should send a signal to auto dealers that these deceptive and abusive practices need to end,” Kukla added. “Federal, state and local law enforcement agencies need to continue to use their authority to root out these practices once and for all.”
Charlene Crowell is the Deputy Communications Director for the Center for Responsible Lending. She can be reached at email@example.com.