St. Louis Post-Dispatch, November 06, 2011
Barbara Webster thought she had bought a new Sorento at Suntrup Kia in the Mehlville area in February. She traded in her old one, signed a credit agreement and drove away.
Now she has no car at all, although she says she made the payments. Suntrup not only took her new car back, but the dealer kept her down payment and didn't return her trade-in.
"I'm very upset. They've taken my car," she said, "plus my money."
This is an example of "yo-yoing," said Rob Swearingen, an attorney at Legal Services of Eastern Missouri, who is representing Webster. It's a fairly common practice, especially in the used car business, he added.
The practice draws fire from consumer advocates, but dealers who spoke with the Post-Dispatch say criticism is unfair. They say they explain to customers that the deal isn't final until the financing contract is sold, and customers sign a paper to that effect.
According to consumer advocates, here's how yo-yoing works:
A consumer drives away having just bought a car and signed a loan agreement, thinking financing is in place. Then the dealer is unable to sell the loan to a finance company, so the dealer wants to renegotiate the deal with the customer or take the car back.
"They'll want you to come in and they'll either want to put you in a different car or a higher interest rate," Swearingen said.
Dealers often refuse to return down payments, using the money as compensation for mileage the customer placed on the car.
The buyers are often people with inadequate income or poor credit who don't qualify for a prime car loan. Webster, 66, a retiree, agreed to pay 18 percent annual interest to finance her $24,665 Sorento. Other contracts reviewed by the Post-Dispatch charged as much as 24.95 percent. Prime auto loans in February averaged about 4.8 percent, according to Bankrate.com.
Webster, who lives in north St. Louis, said she thought the deal was final when she drove away.
"I thought everything was OK and I had me a new car," she said.
Her sales and financing contracts show that she put $2,500 down and traded in a 2007 Chevrolet Equinox. The dealer credited her with a trade-in allowance of $11,574, but she still owed $16,000 on the Equinox. So, the difference was added to the amount she borrowed to buy the Sorento.
She signed an installment loan agreement for $24,665 with Suntrup as the creditor. The contract said the dealership would transfer the loan to JPMorgan Chase Bank.
"After I had it about a month, they said I wasn't financed, and I had to come up with a co-signer," she said. Webster eventually found a relative willing to sign, and they drove to the dealership. But the relative balked when she saw the loan paperwork.
Then the dealer took possession of the car.
Webster said she asked for the return of her trade-in, but the dealer told her it had been sold. She asked for her down payment. "He said I don't get that back," she said.
In a written statement, Butch Suntrup, partner in the dealership, declined to comment, saying he was gathering information on Webster's case and noting the possibility of litigation.
"I can tell you that we aggressively work to secure lending for each and every customer who desires to purchase a car from us; each individual's circumstances vary and privacy laws prevent us from discussing any individual customer's case," he said.
The dealership said more in reply to Webster's complaint to the Better Business Bureau. In that response, Suntrup says the bank discovered that Webster had lost her job. Webster says she retired after she bought the car.
The dealership also said it had auctioned off her trade-in.
"We lost on the sale of her car and so we kept the deposit as collateral to our loss and she would still legally owe us money," the dealership said in the BBB report. "This should be an invalid complaint as we have done everything we could to work with her to get a car she could afford."
Swearingen, whose agency provides free representation to the poor, says he has a pile of yo-yo cases. "I'm starting to see more and more of it," he says.
The practice has drawn fire from consumer advocates across the nation.
"It's been a huge problem all over the country," says Rosemary Shahan, president of Consumers for Auto Reliability and Safety, an advocacy group in California. "You can have good credit and still get yo-yoed."
Dale Irwin, a consumer lawyer in Kansas City, said the practice draws its name from comments made by a Kansas City area auto finance manager during a deposition in a consumer lawsuit.
"They view the car as on a yo-yo string and they can get it back," Irwin said.
Swearingen says he thinks repossessions such as Webster's aren't legal under Missouri law. After all, she had a sales contract and a loan agreement with Suntrup as the creditor. The deal was final, he said.
But dealers often rely on another document signed during the closing process. That document, sometimes called a "bailment," says that the sale is contingent on the dealer's ability to sell the loan. If it can't, the purchaser must return the car and pay a fee. Sometimes that is $30 a day. Sometimes it is 50 cents or a dollar for every mile driven.
In July, Stefan Gilliehan and his wife, Olivia McClinton, bought a 2009 Chrysler 300 from Auto Stop in Hazelwood. The St. Peters couple put $1,000 down and signed a loan agreement with Auto Stop, financing $19,911 at 20.95 percent annual interest.
"They said they could guarantee financing for us," Gilliehan said.
In August, they got a letter from Regional Acceptance Corp. saying they had been denied credit, citing "temporary or irregular employment." After buying the car, McClinton had lost her part-time job.
Then came the phone call; the dealer wanted the car back. The couple returned it, but didn't get their down payment back. Worse, they got a letter from the Missouri Department of Revenue, claiming they owed sales taxes on a car they no longer had.
The couple didn't get their down payment back because they had put 2,500 miles on the car, said Drew, who identified himself as the manager at Auto Stop but wouldn't give his last name.
He said the couple was told that the deal was contingent on financial approval and that they would be charged for mileage. The buyers signed a paper to that effect, he said.
"We can't really remember what we were signing," Gilliehan said. "They kept us in there for probably five hours. It was long drawn out."
That's a common problem among buyers in yo-yo cases, Swearingen says. They don't understand the dense legal documents they sign, often at the end of a long day at the dealership.