Earl Stewart is the owner and general manager of Earl Stewart Toyota in North Palm Beach. The dealership is located at 1215 N. Federal Highway in Lake Park. Contact him at www.earlstewarttoyota.com, call (561) 358-1474, fax (561) 658-0746 or email firstname.lastname@example.org. Listen to him on Seaview AM 960, FM 95.9 and FM 106.9, which can be streamed at www.SeaviewRadio.com every Saturday morning between 9 a.m. and 10 a.m.
This column originally appeared in May 2011.
One of the most common unethical (and some say illegal) sales practices of car dealers is the infamous "spot delivery." If you've bought a car in Florida (and most states), you probably have been spotted, puppy dogged, and yo yo'ed. Upwards of 60 percent of all car sales in Florida are spotted.
A "spot" is short for "spot delivery," which is literally translated into delivering your new or used car purchase immediately, "on the spot."
The spot occurs as soon as you've picked out your car and signed all of the papers. The car dealer has a lot of reasons to do this. The biggest reason is that so you can't change your mind about buying that car. Legally, a contract is more binding when the seller and buyer have exchanged "consideration." Your consideration to the dealer was paying him for the car, which includes down payments, a trade-in and a contract promising to make monthly payments. The dealer's consideration to you is the car, which becomes consummated when you drive it home.
Another part of why you won't change your mind is that you will take the car home, park it in your driveway and tell your neighbors, friends and relatives that you just bought a new car. You'll probably also brag about the fact that you have good credit, got a great price, a low interest rate and a low down payment. Everybody will envy you because you can afford that new car, were so smart to negotiate such a good price and had such good credit that you got the lowest interest rate and down payment.
When you fall into this trap, you've just been "puppy dogged." Have you ever bought a puppy for your kids and brought it home from the pet store? Your kids play with the new puppy and take it over to their friends' houses to brag and tell them what great parents they have. What are the odds that you're going to snatch that puppy out of your child's arms and take it back to the pet store, even if it poops on your carpet?
As if all that isn't enough, the dealer has another reason to spot deliver your car. If you traded in your old car, you can't compare the price you paid for your new car because you no longer have your trade-in. Dealers have a vernacular for this too. It's called "de-horsing." In fact, a dealer will often de-horse a prospect before she picks out a new car and/or signs the papers. He will give her a demo to drive home just so that he can keep her from comparing the trade-in allowance on her old car.
In fact, the delivery consideration and the puppy dog are such strong tools to keep you from bringing the car back, the dealer needs an "ace in the hole" just in case he wants you to bring the car back. This could be because he wants or needs you to pay more for the car, pay a higher interest rate or down payment or have a cosigner on the installment sales contract.
The dealer's ace in the hole is another contract known as the "yo yo" or rescission agreement. This piece of paper, which you might not even remember signing, says that you have to bring your new car back if the dealer cannot find a lender who will approve your credit, down payment, interest rate and/or amount financed.
A yo yo goes out and back and of course, rescission means the contract is canceled. The yo yo agreement says that if you refuse to bring the car back, the dealer can repossess the car and charge you a high fee for its usage until you do bring it back, like 50 cents a mile and $50 a day plus his costs of recovery.
If the dealer did not have this agreement signed, you could keep the car and make your monthly payments to the dealer at terms and conditions you originally signed. Dealers won't do this because they don't get all of their money up front as they do when they sell the finance contract to the bank. They also don't like it because they assume the credit risk if the buyer defaults.
An interesting question to ponder is whether the dealer knew in advance that he could not find a lender who would finance your car with such a low down payment, such a low interest rate, for that little number of months. Why would he do such a terrible thing?
Well he may think that you will fall in love with that car so deeply that you will agree to pay him more profit in terms of higher interest and down payment. He might know that you won't want to suffer the embarrassment of telling your family, friends and neighbors that your credit isn't as good as you told them it was and you really aren't so smart that you negotiated such a low price and down payment.
There's even a good argument to be made for the fact that the spot delivery is illegal and perhaps even criminal because it's a violation of the Federal Truth in Lending Act. Without getting too technical, the signing of the yo-yo agreement violates TILA because it means the dealer is not the actual creditor. The finance contract you and he signed is almost meaningless and used only to take you out of the market. The only meaning is that you may have the option of signing a new contract, but this one might be for more money down, a higher interest rate and/or longer terms.
If you're interested in the legal specifics of why the spot delivery and yo yo agreement are illegal and possibly criminal, click on www.IngalsbeSpotDelivery.com. This legal memo was written by an attorney, Raymond Ingalsbe, who is an expert on car dealers' illegal practices. He has practiced law in Palm Beach County for more than 40 years and sues only car dealers. He even helps train other lawyers how to sue car dealers.
In fact, he sued me several time before I cleaned up my act and entered my phase as a recovering car dealer.
The bottom line is that you should not allow yourself to be spot delivered. Whether it's illegal or not, it's certainly not a smart move for the buyer. You wouldn't move into a new home before the bank approved your mortgage would you?
When you drive that new or used car home, be sure that your credit has been approved by the lender for all terms and conditions such as interest rate, number of months, down payment and who signed the contract (is a consigner required).
If that means waiting a few days, that's good, too, because it allows you time to think over a very important decision. Buying a new car is the second largest purchase most people make in their lives and should never be rushed.