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1.2.14 Yo-Yo Transactions

A common dealer practice is to complete a sale and send the consumer home with the vehicle, but demand the vehicle back if the dealer cannot sell the installment sales agreement on terms it considers sufficiently advantageous. Such practices raise a number of legal issues.

  • • The first question is whether the agreement includes a valid contingency clause binding the consumer and complying with state law. See § 4.2, infra.
  • • Have the conditions triggering the contingency clause actually taken place, and did the dealer know in advance that the contingency would not be met? See §§ 4.2.7, 4.2.8, infra.
  • • The transaction is likely to involve misrepresentations and related UDAP violations. See §§ 4.2.9, 4.2.10, infra.
  • • Has the Truth in Lending disclosure accurately disclosed the contingent nature of the transaction? See § 4.3, infra.
  • • The ECOA and FCRA have notice requirements that are triggered by an adverse action regarding the consumer’s credit application. Have the dealer and lenders complied with these requirements? See § 4.4, infra.
  • • When a dealer seeks to cancel a consummated sale, it is illegal for the dealer to fail to return the consumer’s trade-in vehicle and deposits. See § 4.5.1, infra.
  • • When the consumer does not comply with a dealer’s demand to return the vehicle, it is possible that a dealer’s response may involve malicious prosecution. See § 4.5.2, infra.
  • • When an initial transaction is canceled, the dealer may engage in various deceptive practices when negotiating and filling out the paperwork for a second sale to the same consumer to replace the first transaction that fell through. See § 4.6, infra.
  • • Yo-yo litigation involves unique issues concerning arbitration requirements, what information to seek in discovery, and damages issues. See § 4.7, infra.