Can the dealership offer no interest until contract signing and then add in interest due to credit?
Full Question:
Answer:
The answer will be a matter of subjective determination for the court, based on all the facts and circumstances involved. For example, evidence will be used to prove whether the mistake made innocently or not, and whether the dealer should have known if there was a mistake in length of employment. It will be judged on a standard of what inquiry a reasonable person would be expected to make.
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.
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;
OFFICIAL COMMENTARY:
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.
The following are Idaho statutes:
48-603. Unfair methods and practices. —
The following unfair methods of competition and unfair or
deceptive acts or practices in the conduct of any trade or
commerce are hereby declared to be unlawful, where a person
knows, or in the exercise of due care should know, that he has in
the past, or is:
(1) Passing off goods or services as those of another;
(2) Causing likelihood of confusion or of misunderstanding as to
the source, sponsorship, approval, or certification of goods or
services;
(3) Causing likelihood of confusion or of misunderstanding as to
affiliation, connection, or association with, or certification
by, another;
(4) Using deceptive representations or designations of
geographic origin in connection with goods or services;
(5) Representing that goods or services have sponsorship,
approval, characteristics, ingredients, uses, benefits, or
quantities that they do not have or that a person has a
sponsorship, approval, status, affiliation, connection,
qualifications or license that he does not have;
(6) Representing that goods are original or new if they are
deteriorated, altered, reconditioned, reclaimed, used, or
secondhand;
(7) Representing that goods or services are of a particular
standard, quality, or grade, or that goods are of a particular
style or model, if they are of another;
(8) Disparaging the goods, services, or business of another by
false or misleading representation of fact;
(9) Advertising goods or services with intent not to sell them
as advertised;
(10) Advertising goods or services with intent not to supply
reasonably expectable public demand, unless the advertisement
discloses a limitation of quantity;
(11) Making false or misleading statements of fact concerning
the reasons for, existence of, or amounts of price reductions;
(12) Obtaining the signature of the buyer to a contract when it
contains blank spaces to be filled in after it has been signed;
(13) Failing to deliver to the consumer at the time of the
consumer's signature a legible copy of the contract or of any
other document which the seller or lender has required or
requested the buyer to sign, and which he has signed, during or
after the contract negotiation;
(14) Making false or misleading statements of fact concerning
the age, extent of use, or mileage of any goods;
(15) Promising or offering to pay, credit or allow to any buyer
or lessee, any compensation or reward in consideration of his
giving to the seller or lessor the names of prospective
purchasers or lessees, or otherwise aiding the seller or lessor
in making a sale or lease to another person, if the earning of
the rebate, discount or other value is contingent upon the
occurrence of an event subsequent to the time the buyer or lessee
agrees to buy or lease;
(16) Representing that services, replacements or repairs are
needed if they are not needed, or providing services,
replacements or repairs that are not needed;
(17) Engaging in any act or practice which is otherwise
misleading, false, or deceptive to the consumer;
(18) Engaging in any unconscionable method, act or practice in
the conduct of trade or commerce, as provided in section 48-603C,
Idaho Code, provided, however, that the provisions of this
subsection shall not apply to a regulated lender as that term is
defined in subsection (37) of section 28-41-301, Idaho Code;
(19) Taking advantage of a disaster or emergency declared by the
governor under chapter 10, title 46, Idaho Code, or the president
of the United States under the provisions of the disaster relief
act of 1974, 42 U.S.C. § 5121 et seq., by selling or
offering to sell to the ultimate consumer fuel or food,
pharmaceuticals, or water for human consumption at an exorbitant
or excessive price; provided however, this subsection shall apply
only to the location and for the duration of the declaration of
emergency. In determining whether a price is exorbitant or
excessive, the court shall take into consideration the facts and
circumstances including, but not limited to:
(a) A comparison between the price paid by the alleged violator
for the fuel, food, pharmaceuticals, or water and the price for which
the alleged violator sold those same items to the ultimate consumer
immediately before and after the period specified by the disaster or
emergency declaration;
(b) Additional costs of doing business incurred by the alleged
violator because of the disaster or emergency;
(c) The duration of the disaster or emergency declaration.
Notwithstanding anything to the contrary contained elsewhere in
the act, no private cause of action exists under this subsection.
48-603C. Unconscionable methods, acts or practices. —
(1) Any unconscionable method, act or practice in the conduct
of any trade or commerce violates the provisions of this
chapter whether it occurs before, during, or after the conduct of the
trade or commerce.
(2) In determining whether a method, act or practice is
unconscionable, the following circumstances shall be taken into
consideration by the court:
(a) Whether the alleged violator knowingly or with reason to
know, took advantage of a consumer reasonably unable to protect
his interest because of physical infirmity, ignorance,
illiteracy, inability to understand the language of the
agreement or similar factor;
(b) Whether, at the time the consumer transaction was entered
into, the alleged violator knew or had reason to know that the
price grossly exceeded the price at which similar goods or
services were readily available in similar transactions by
similar persons, although price alone is insufficient to prove
an unconscionable method, act or practice;
(c) Whether the alleged violator knowingly or with reason to
know, induced the consumer to enter into a transaction that was
excessively one-sided in favor of the alleged violator;
(d) Whether the sales conduct or pattern of sales conduct would
outrage or offend the public conscience, as determined by the
court.
