yo-yo financing can spell trouble

spot delivery

You may be a big fan of spot delivery in your dealership, but if you’re not doing it right, you may be hearing from the FTC.

Ask any dealership employee what their busiest times are, and you’ll likely always get the same answer: nights and weekends. This is when the average buyer is home from work and available to shop — and hopefully buy.

The biggest problem with night and weekend deals, though? Most banks are closed, and if they’re not, they have a skeleton crew. This makes it difficult to secure financing for some of your customers.

How many times have you submitted a potential buyer’s financial information and crossed your fingers for it to make it through the bank’s automatic computer system with a definite “approved” — or even “denied”? There’s nothing more frustrating than seeing the word “pending” appear as the status. That means you may have to endure a lot of waiting, and if a customer has to wait, there’s a strong chance their eyes are going to wander to that other dealership down the road.

Situations like these are the reason spot delivery was invented. If your dealership is doing spot delivery correctly, you’re probably a big fan because it lets the customer leave with the vehicle while financing is still pending. It can be an effective method for keeping a customer and making the sale. That is, of course, if the bank ultimately approves financing at the quoted interest rate.

Spot delivery can be risky if you’re not careful, and too many dealerships have handled it completely the wrong way. So much so that the Federal Trade Commission (FTC) has its eye on dealerships engaging in unfair or deceptive spot delivery tactics, called yo-yo financing.

spot delivery

Why yo-yo financing is not the same as spot delivery

Spot delivery gets a bad name not just because some dealerships abuse it, but because others are under the impression that the terms “spot delivery” and “yo-yo financing” can be used interchangeably. Yo-yo financing is not spot delivery; yo-yo financing is a spot delivery scam.

Spot delivery laws vary by state, but typically, if a customer’s financing falls through, they’ll be asked to return the new vehicle and will get their down payment and trade-in back. Or, the dealer will help them figure out an alternative.

With yo-yo financing, dishonest dealers try to pressure a customer into a different deal, blatantly lie to them, and even threaten to repossess the vehicle or call the police. Any self-respecting dealership owner does not allow his staff to engage in yo-yo financing tactics.

spot delivery

Keep your spot delivery honest and compliant

There are risks when it comes to spot delivery: you may send someone home with a car, and then find out the finance rate you quoted them isn’t approved. You don’t know how that customer will respond to the news, especially if they didn’t completely understand the terms of the contract they signed.

How can you avoid yo-yo financing and awkward spot delivery situations?

In 2012, 32 state attorney generals wrote a letter to the FTC in which they requested the regulation of spot delivery. The FTC doesn’t have a formal regulation in place, but the seven suggestions the attorney generals offered are an excellent guide for dealerships who are trying to ensure they’re compliant and ethical:

  • Keep consumers’ trade-in vehicles until financing is approved.
  • Don’t threaten to repossess or repossess vehicles in a way that doesn’t comply with state law. Also, don’t threaten to file a theft or other police report if a consumer refuses to return the car to the dealership if financing isn’t approved.
  • Don’t charge consumers for mileage or wear and tear or for any other reason pending approval of financing.
  • Offer consumers either a complete unwinding of the deal or the ability to seek credit under other terms. The consumer should have the choice to decide which of the two alternatives to accept, and you shouldn’t make any representations to the contrary concerning the consumers’ obligations or rights.
  • Don’t keep any part of a down payment or deposit if a deal falls through.
  • Tell a consumer upfront that if the first finance agreement isn’t approved, he or she has the right to walk away from the deal and has no obligation to your dealership.
  • Before completing a spot delivery, clearly disclose to the consumer that financing hasn’t been finalized and share any responsibilities or potential consequences they have or may face in a spot delivery.

In addition to following these guidelines, you also need to know your state laws. Every state is different, and each employee in your dealership should have a thorough understanding of spot delivery compliance in your area.

As long as you are thoughtful – and legal – spot delivery is an effective way to close a viable deal that may fall through otherwise. Reserve spot delivery for consumers who you’re 99% sure will ultimately be approved. For everyone else, you may want to sit down with the customer and figure out an alternative scenario that could still result in a sale.