On May 31, 2023, the Federal Trade Commission (“FTC”) requested public comment on a petition for rulemaking it received from six national consumer advocate groups regarding “yo-yo sales,” a term the groups use to refer to motor vehicle sale transactions where credit terms or other deal terms are changed post-purchase and delivery of the vehicle because of a financing contingency. In the petition, the groups ask the FTC to promulgate a rule requiring that a credit contract between a consumer and an auto dealer constitutes the final terms of a car sale.
The consumer advocate groups submitting the petition are the National Association of Consumer Advocates, the Consumer Federation of America, the Center for Responsible Lending, Consumers for Auto Reliability and Safety, the National Consumer Law Center, and U.S. PIRG. According to the groups, yo-yo sales are an unfair and deceptive practice under Section 5 of the FTC Act (“UDAP”). The groups contend that auto dealers sometimes demand changes to the credit terms, change the purchased vehicle, or unwind the deal completely after the consumer has completed the purchase and believes the transaction is complete. Under the proposal, these practices would be addressed by ensuring that the terms of a signed retail installment sales contract (RIC) between a consumer and commercial seller of a motor vehicle are treated as final, and would include a requirement that the consumer be fully approved for the credit terms in the RIC before signing it. Further, the credit terms in the RIC would remain effective whether or not the RIC contract is or will be assigned to a third party.
The petitioners contend that the ability of an auto dealer to unilaterally change or cancel a credit contract the consumer believes is already final is inherently unfair or deceptive. While a dealer may condition the sale on securing third-party credit, the consumer groups assert that consumers reasonably assume the purchase is final once they sign the RIC and take delivery of the vehicle, which prevents them from shopping or comparing credit terms from other financing entities before making the purchase.
The FTC’s proposed Motor Vehicle Dealers Trade Regulation Rule, which was published for public comment in July 2022 and is not yet finalized, appears to address many of the groups’ concerns. That proposed rule would prohibit dealers from misrepresenting when the transaction is final or binding on all parties and from making misrepresentations about keeping cash down payments or trade-in vehicles, charging fees, or initiating legal process or any action if a transaction is not finalized or if the consumer does not wish to engage in a transaction. See Motor Vehicle Dealers Trade Regulation Rule § 463.3(h) and (i). However, the groups maintain that the FTC’s proposed approach will not deter dealers from pressuring consumers to enter into additional contracts with less favorable terms, and may, in fact, exacerbate consumer harm resulting from yo-yo sales tactics. Accordingly, they are advocating for a bright-line rule.
While industry comments have not been submitted as of the time of this writing, the National Automobile Dealers Association (“NADA”) pointed out in its comments to the Motor Vehicle Dealers Trade Regulation Rule that conditional sales to consumers are routine and serve consumer preferences for the delivery of a new or used motor vehicle at the time the transaction is conducted. NADA contends that most sales are finalized on the terms agreed to by the dealer and consumer, and that dealers are incentivized to finalize conditional sale contracts on such terms as dealers typically earn less if they and the consumer decide to enter into a different retail installment sales contract because no finance source was willing to take assignment of the conditional sale contract on the terms submitted. NADA acknowledges that abusive spot deliveries should not be tolerated, but maintains that there is no credible evidence that they are a systemic problem in the marketplace. When an abusive spot delivery does occur, NADA believes it can be addressed under the FTC’s existing UDAP authority or under state law.
Comments to the petition may be submitted through June 30, 2023.