By Capt. Tom Wallace,
Navy Reserve Administrative Law
This article is not a substitute for individual legal advice and readers are advised that they should consult a lawyer to obtain proper advice for any legal issue.
The most common car purchase problem reported to Navy legal assistance providers by Sailors and dependents is the “spot delivery” or “yo-yo” car sale. Typically, problems include violations of State Unfair and Deceptive Trade Practice Acts and Federal consumer law violations under the Truth in Lending Act (TILA) and the Federal Odometer Act.
In a spot delivery or yo-yo car sale, a Sailor/Marine agrees to buy a used vehicle. They sign a purchase contract and a retail installment sales contract (RISC) and the dealer lets them leave the car lot with the vehicle before the RISC is actually approved by a bank. The Sailor/Marine mistakenly believes that they already own the vehicle despite the fact that in many states the sale is not complete until the bank approves the vehicle loan.
Some Sailors/Marines, once informed that their loan has not been approved and they do not “own” the vehicle, sadly opt to sign a costly and dealer-friendly new RISC with higher interest rates and higher monthly payments. The dealer benefits from the service member’s affection for their new car and calculates the Sailor/Marine won’t balk at paying more than they bargained for to keep it!
So how can you avoid the trap of spot delivery or “yo-yo” car sales?
• Do your homework. Fully research the vehicle you want to buy and make sure it meets your transportation and personal needs. Avoid any impulse buying and arrive at the car lot you’ve selected with confidence in the car you want and what price you think you should pay. Multiple web-based resources exist to give you a good idea how much you should pay for any car and how many dealers in your area have the car you want. Negotiate with them and be prepared to walk away for a better deal!
• Understand your credit. Unless you are able to pay for your car outright, you will need somebody to finance a loan. That might be a bank, credit union, or even the dealer themselves. You should be particularly careful when the dealer is the financier! It is recommended you seek financing from a bank or credit union if possible as they generally offer better, more reliable terms for your loan. The terms of the loan offered to you by the bank or credit union will be based on your credit history and ability to pay. (Another reason a good credit history of not assuming too much debt and always paying your bills on time pays off!) Many banks and credit unions will even “pre-approve” you for a car loan making your negotiations with the car dealer that much easier. Discuss your car-buying strategy with your bank or credit union lender for tips on negotiating with dealers. If for whatever reason you are unable to secure a bank or credit union loan, you should still be aware of the general interest rates they charge for loans in your area. You should use these rates as your basis for any negotiation with a dealer financier & be wary of paying rates in excess of typical bank rates! Today’s rates are at historic lows, and even Sailors/Marines with poor credit history should be able to avoid excessive interest rates.
• Bring a copy of your RISC to Base Legal for review BEFORE YOU SIGN IT! As an adult, you are generally liable for any contact you sign. Any honest car dealer should have no problem with providing you a copy of your RISC for review by Navy Legal. Take advantage of this free service, make an appointment, and talk to a Navy lawyer before you sign on the dotted line! Navy lawyers and your local Fleet & Family Service Center can also provide guidance regarding measures to improve your personal finances and perhaps a better deal, for a better car, sometime down the road.
Finally, be wary of additional scams:
• If you’ve provided a trade-in as part of your deal, a questionable dealer might advise you need to sign a new RISC at a higher interest rate because your trade-in has been sold but your loan won’t be approved without that higher rate. Now you have no car & have to sign? Not True! Most states outlaw the transfer of ownership of your trade-in until the financing on your new car has been approved. If a dealer makes such a claim, ask them to put it in writing and immediately contact a Navy lawyer!
• Some dealers may also claim, and even write in their contracts, that if your financing isn’t approved by a lender and you must return your car, you will owe them a “rental fee” for the time you drove it. This is not true and do not agree to this provision.
Bottom Line – nobody can force you to sign a contract and with some effort you can set yourself up for success with a fair deal for a vehicle you want. For further assistance on legal issues involving car purchases and other consumer issues, please consult your local legal assistance office.
To find the nearest U.S. Navy legal assistance office, please access the Navy JAG website. For all other services, please access the Armed Forces Legal Assistance Locator.