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Highway Robbery: Auto Loan Scam Alert

Car dealers brazenly target Black, female and credit-challenged buyers with fine-print financing foolishness. Heed the signs and hit the brakes!

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Mixed race woman enjoying new car
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Buying a new car may give you a tinge of excitement — as well as some trepidation.

On the one hand, it’s fun to get behind the wheel of your dream vehicle and enjoy that new-car smell. On the other hand, no one wants to haggle for ridiculously long hours over price or deal with overbearing, pushy car salespeople.

Now there’s another wrinkle to consider if you’re in the market for a new set of wheels.

Actually, it’s not just a wrinkle but an outright scam, one that consumer protection agencies say most commonly affects women, African Americans and those with poor credit ratings.

This fraud is known as the “yo-yo scam.” It’s perpetrated by unscrupulous car dealers that sell you a car — and let you drive off the lot with it — only to pull you back in like a yo-yo, by contacting you days or weeks later to try to squeeze more money out of you.

In such a scenario, the dealer insists that you return the vehicle to the dealership by stating that your application for credit wasn’t approved after all or that you need to pay a higher rate.

This fraud is known as the 'yo-yo scam.' It’s perpetrated by unscrupulous car dealers that sell you a car — and let you drive off the lot with it — only to pull you back in like a yo-yo, by contacting you days or weeks later to try to squeeze more money out of you.

Basically, the yo-yo scam occurs when you sign a contract, and the dealer fraudulently makes it seem like the transaction is a done deal. But in reality, the dealer has created a situation where, due to fine print and questionable tactics, it can cancel the deal, seize possession of the car and even sell it to someone else.

All across the country, people are dealing with this scam. Many car buyers get called back into the dealer’s lot during a yo-yo scam and told that they have to pay a much heftier interest rate or put more money down in order to keep their cars.

Since many folks have no other financing options and desperately need their vehicles, they cave in to this high-pressure sales tactic and sign new contracts with onerous financial terms.

In one recent case, authorities say a man in Oregon bought a car from a dealer, signed a credit contract and drove the vehicle home the same day, thinking he had purchased it. But two weeks later, the dealer called and said his loan wasn’t approved. The man returned and signed a new contract. Then, a month later, the dealer called again, claiming the financing fell through and insisting the man return the car. But the dealer refused to refund his down payment.

The dealer has created a situation where, due to fine print and questionable tactics, it can cancel the deal, seize possession of the car and even sell it to someone else.

In the end, the man had no money to buy another car and no vehicle to get to work; he also lost wages and missed time on the job dealing with the hassles at the dealership.

“This story is unfortunately not unique, and consumers have described experiences such as returning to the dealership numerous times over several months only to have the deal fall through, being threatened with repossession, losing thousands of dollars on down payments, being accused of committing a crime by refusing to return the vehicle they purchased and many other nightmare scenarios,” advocates from the Consumer Federation of America wrote in 2022.

In the end, the man had no money to buy another car and no vehicle to get to work; he also lost wages and missed time on the job dealing with the hassles at the dealership.


If all of this sounds heinous, that’s because it is.

Protecting yourself against yo-yo car sales


Yo-yo car sales practices caught the eyes of federal regulators more than a decade ago. Indeed, over the past 10 years, the Federal Trade Commission (FTC) has brought more than 50 motor vehicle–related enforcement actions, including financing paperwork falsification, yo-yo financing, deceptive and unfair add-on fees, discrimination, and more.

More recently, the FTC has moved to ban yo-yo financing altogether. The agency is currently finalizing rules around the practice to better protect consumers.

Meanwhile, how can you protect yourself?

The best option is to get financing for a vehicle from another source, before you head to a dealership.

Although 70 percent of consumers who are financing a vehicle get a car loan from a dealership, you’re not required to do so. You can get an auto loan from a credit union or bank in advance and walk onto a car lot with financing in hand (in the form of a check or an approval letter).

If that’s not possible and you need financing from the dealer, there are a few key terms and conditions in a car contract you should be aware of and scrutinize in order to shield yourself against yo-yo car sales.

Here are a few terms and conditions to look out for:


  1. Conditional sales agreements: Some dealerships may use a conditional sales agreement, which means that the sale is not final until financing is approved. Be sure to read the agreement carefully and ask questions about any clauses or conditions that you do not understand. Not all states allow conditional sales agreements.
  2. Spot delivery agreements: This type of agreement allows a buyer to take possession of a car immediately, even if financing has not yet been approved. However, these agreements often include a clause that allows the dealer to cancel the sale and take back the car if financing is not approved within a certain time frame. Read the contract carefully and understand the conditions under which the sale may be canceled.
  3. Interest rates and fees: Carefully review the interest rate and any fees that are included in the financing agreement. Dealers may try to add in extra fees or charge higher interest rates, which can make the financing more expensive over time.
  4. Arbitration clauses: Some car contracts may include an arbitration clause, which means that disputes between the buyer and dealer must be settled through arbitration rather than through the court system. Read this clause carefully and understand your rights and options if a dispute arises.
  5. Buyer’s order or retail installment sales contract: This is the document that outlines the terms of the sale, including the purchase price, any financing terms and any add-ons or warranties. Make sure to carefully scrutinize this document and ask questions about any terms that you do not understand.

By paying close attention to these terms and conditions, you can better safeguard yourself against yo-yo car sales and other predatory practices by dealerships.

Additionally, if you are victimized by a car dealer trying to pull a yo-yo scam on you, file a complaint and report the dealership immediately to the Better Business Bureau and federal authorities.

The FTC and the Consumer Financial Protection Bureau (CFPB) are both federal agencies that work to protect consumers in financial transactions, including car sales. The CFPB can help you with complaints related to auto financings, such as exorbitant interest rates or fees.

Last, turn to your state attorney general’s office. Each state has an attorney general’s office that is responsible for enforcing consumer protection laws. Register a complaint with your state’s attorney general if you believe a car dealer has engaged in unfair or deceptive practices.

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