Investigative Unit 2013: When Car Dealers Use the Old Yo-Yo Tactic

PHOTO: ABC News Brian Ross investigates yo-yo financing at car dealerships. PlayABC News
WATCH Beware the Car Dealer Yo-Yo

The word "yo-yo" can evoke nostalgic memories of a childhood toy – but it's also the term for a car sales practice which can be aimed at vulnerable consumers, industry critics say. An ABC News hidden camera investigation this summer unwound the tactic and exposed how it can get consumers to pay far more than they expected for their cars.

In the automobile business, yo-yo financing begins a when a dealer sells someone a new car even though he or she has poor credit. The consumer is permitted to take the car home before the financing is complete. Paperwork is supposed to make clear that the sale is conditioned on successful completion of the financing, but that does not always happen. Later, the consumer is told there was a problem with the financing and the car needs to be returned. By then, the customer may have fallen in love the car and it's easy to pressure the consumer into a different, more expensive deal. It may get even harder for the consumer if the dealership sells the trade in before the deal is complete.

The consumer goes out, the consumer comes back – and often the dealer makes more money.

ABC News' report centered on Jenee Smith, of Fort Wayne, Ind., who returned to the dealership that sold her a car, suspecting a yo-yo deal. Smith wore a hidden camera and recorded the salesman telling her the deal needed to be re-done and she'd have to put down $300 more. When ABC News Chief Investigative Correspondent Brian Ross questioned the salesman about the change, he claimed Smith had signed a document allowing it – but when we looked at that document, it was the salesman's signature on the paper, not Smith's.

The National Automobile Dealers Association told ABC News in August that the vast majority of deals go through without mistakes or incidents, and the group "condemns fraudulent transactions of any type."

The owner of the dealership ultimately promised to abide by the original deal.

WATCH the original ABC News report.

Impact: Following the ABC News report, Sen. Ed Markey, D-Mass., requested the Federal Trade Commission to assemble data on the extent of the problem. In his letter to FTC Chairwoman Edith Ramirez, Markey said that yo-yo financing and other tactics such as secret interest rate markups "cause significant and unnecessary increases in the cost of an automobile for average Americans and suggest that some dealers may be engaged in unfair or deceptive trade practices that may be in violation of some of the federal laws within the Commission's jurisdiction."

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