Can I Return a Car is My Financing Isn't Approved?
New Jersey requires a notice to be given to the buyer about returning the vehicle if credit isn't approved. Please see the statute below. In some cases, a dealer will deliver a car before the contract is finalized, and change the finance terms after delivery but before signing the contract, in a practice called yo-yo financing. Some states regulate such practices specifically in unfair trade practice statutes. Idaho has a broader statute that governs generally unfair practices.
In order to rescind a contract for fraud, the wrongful intent of the deceptive party must be proven. Rescission is the name for the remedy that terminates the contractual duties of both parties, while reformation is the name for the remedy that allows courts to change the substance of a contract to correct inequities that were suffered. In order to have a rescission, both parties to the contract must be placed in the position they occupied before the contract was made. Courts have held that a party may rescind a contract for fraud, incapacity, duress, undue influence, material breach in performance of a promise, or mistake, among other grounds. Specific performance is an equitable remedy that compels one party to perform, as nearly as practicable, his or her duties specified by the contract. Specific performance is available only when money damages are inadequate to compensate the plaintiff for the breach
Often a customer will not qualify for financing upon the terms on the first contract. The customer may be required to increase a down payment, higher APR, etc. in order to qualify for a loan. The dealership has the customer come to sign a second contract with the different terms but backdates the second contract with the date of the first contract. This affects the finance disclosure laws in that the customer is being charged interest for a time period in which the contract is not yet in effect, etc. In addition to making a material misrepresentation regarding when the customer takes the obligation of the new contract, a backdated contract often also violates the single document rule applicable to such sales because another form (usually called Acknowledgment of Rewritten Contract) has the actual date when the contract was signed. Further, many customers are not told that they do not have to sign a second contract, instead they can choose to cancel the contract and return the new vehicle and have the down payment and trade in vehicle refunded.
Please see te following NJ statute:
56:12-67. Vehicle to be returned if credit not approved; notice required
a. No leasing dealer may permit a prospective lessee to take possession of a motor vehicle subject to a lease if such lease is contingent upon the approval of the lessee's credit unless the lessee is provided with, and acknowledges receipt of a notice on a separate page from any other notice, term or condition of the lease, which provides substantially the following: NOTICE: YOUR LEASE IS SUBJECT TO CREDIT APPROVAL. IF YOUR CREDIT IS NOT APPROVED YOU MUST RETURN THE VEHICLE. The notice may contain the name, address, phone number and logo of the leasing dealer, and shall contain an acknowledgement by the lessee of the receipt of the notice.
b. (1) No lease shall bind a lessee or lessor unless both the lessee and lessor have had one business day to review the lease contract before the signing of the contract.
(2) No leasing dealer may permit a prospective lessee to take possession of a motor vehicle subject to a lease unless the lessee is provided with a conspicuous notice which provides substantially the following: NOTICE: THE LESSEE AND THE LESSOR SHALL BE ENTITLED TO REVIEW THE CONTRACT FOR ONE BUSINESS DAY BEFORE SIGNING THE CONTRACT IMMEDIATELY ADJACENT TO THE SIGNATURE LINE OF THE CONTRACT.
c. The leasing dealer shall complete the credit check of the prospective lessee within 5 business days of both the leasing dealer and lessee signing the lease.
The following is an example of a state statute dealing with yo-yo financing:
Misrepresentation Regarding Failure to Finance -- No dealer or broker, who has spot delivered a vehicle to a consumer and thereafter fails to complete the transaction in accordance with the terms offered in the purchase order, lease agreement or retail installment contract, shall misrepresent to a consumer the reason that the consumer does not qualify for financing or misrepresent why the transaction cannot be completed according to the terms offered;
This rule addresses the unlawful business practice commonly known as "yo-yo financing" or "bushing." In a yo-yo transaction, a dealer quotes the consumer finance terms that are not yet accepted by a financial organization in order to get the consumer to take delivery of the vehicle "on the spot." Later, when the dealer either cannot get the quoted terms funded or cannot make the expected profit from added points, the dealer tells the consumer that the deal did not go through and that the dealer needs to rewrite the transaction on terms usually less favorable to the consumer. It is a common practice of dealers and brokers to quote financing terms that include an undisclosed yield spread premium when they spot deliver a vehicle. When a dealer engages in the practice of unwinding a transaction even though the consumer is qualified for the original quoted terms, simply so the dealer can add interest points or make more profit, it is one of the most egregious forms of the yo-yo scam. If there is a financial organization that will fund the quoted rate, the dealer or broker will never be justified in unwinding the transaction because the rate is not low enough to allow the dealer or broker to add a yield spread premium. A dealer or broker either knows, or has the ability to find out, prior to the time it spot delivers a motor vehicle and quotes finance terms: the available buy-rates, the consumer's credit history, and the consumer's credit score. Dealers who "spot deliver" motor vehicles are in fact the originating creditors extending the finance terms to the consumer. In today's credit market, a dealer can almost always find a financial organization that will accept the transaction. The only question is whether the dealer will take a loss, break even or make a profit on the financing. The primary targets of this rule are dealers and brokers who offer terms and availability of financing without having a good faith basis based upon the consumer's credit worthiness, simply to have the consumer accept spot delivery. This rule should deter brokers or dealers from knowingly quoting rates to consumers which they know the consumer will not be approved for simply to get the consumer to take delivery of the vehicle. Not all transactions in which a credit application is not approved are scams. Sometimes a consumer does not have strong enough credit to quality for the most attractive financing offers, has a change in financial circumstances or has provided incomplete or false information on the credit application.