By: Jeremiah Ross
I often get frantic calls from people who have recently purchased and financed a vehicle. These people are asking for help because the dealer is claiming the consumer must return to the dealership and sign additional financing documents with terms less favorable to the consumer. Consumers are confused and angry when they learn the financing fell through and the dealer no longer has their trade-in to return to them. Most of the time these consumers are victims of a bushing scam. These bushing scams are also known as “spot delivery” or yo-yo sales.
Here is the way bushing scams typically work. The dealer will sell a person a car and offer to finance the vehicle. The consumer signs financing paperwork and takes the vehicle home. Usually the consumer is under the impression the financing is complete and the vehicle is theirs. Unbeknownst to the consumer, after the consumer leaves the lot the dealer is still attempting to find a finance company to finance the vehicle. Consumers may receive credit denial letters in the mail, but think it is in error because the dealer told them the vehicle was financed. Eventually, the dealer contacts the consumer and informs them financing could not be obtained. The scam is complete when the dealer has the consumer agree to new less favorable financing terms for the vehicle. This often results in the consumer paying a higher interest rate and putting an additional down-payment down on the vehicle.
The dealer benefits from this transaction because the consumer is usually under the impression the vehicle was theirs the day they drove it off the lot. Consumers have often put money into the vehicle to buy things like floor mats, a stereo, or other items. As a result, they feel trapped and will sign new less favorable financing terms. Additionally, dealers may inform the consumer that their trade-in has been sold and the dealer does not have “authority” to refund their down-payment. These are frustrating issues for consumers and practitioners alike. However, in Oregon there are laws to protect consumers in these situations.
Below is a list of questions and answers to assist practitioners and consumers that are facing a spot delivery issue:
Is Spot Delivery Legal In Oregon? Yes, but dealers must comply with ORS 646A.90 and OAR 137-020-0020 (3). These requirements allow dealers to make an offer to sell or lease a vehicle to a consumer that is subject to future acceptance by a lender. ORS 646A.90 (2)
How long does a dealer who spot delivers a vehicle have to obtain financing for the vehicle? A dealer must find financing for the vehicle under the exact terms negotiated between the dealer and consumer within 14 days after the date on which the buyer takes possession of the vehicle. ORS 646A.90 (3) (a)
What happens to a Consumer’s trade-in in a spot delivery deal? In a spot delivery deal, the dealer cannot sell or lease the consumer’s trade-in before the dealer has received final approval of funding from the lender. ORS 646A.90 (3) (b)
Can a dealer offer to obtain financing for a vehicle knowing that the financing will not be approved? No, a dealer cannot spot deliver a vehicle to a consumer unless the dealer has a “reasonable basis to believe the consumer could qualify for the terms of financing quoted at the time of delivery.” 137-020-0020 (3) (x) This is a powerful rule that consumers with horrible credit can use when the dealer initially has them sign a retail installment contract or lease with a low interest rate and little money down.
Does a dealer that fails to finance a spot delivered vehicle have to tell a person why the financing fell through? Yes, if a dealer spot delivers a vehicle and fails to obtain financing under the original terms, the dealer cannot make a misrepresentation regarding why the consumer does not qualify for the original financing terms or misrepresent why the transaction cannot be completed under the original terms. 137-020-0020 (3) (y) This rule prohibits dealers from calling the consumer back to the lot to sign new less favorable financing terms, even after the consumers original terms were approved by the lender.
What does the dealer have to do if they cannot obtain financing for the vehicle under the original terms?
A dealer that spot delivered a vehicle to a consumer and later learns the consumer does not qualify for the original terms must do the following prior to offering, negotiating, or entering into new terms for the purchase or lease of the vehicle:
- Inform the consumer that the consumer is entitled to have all items of value received from the consumer as part of the transaction, including any trade-in and down payment, returned to the consumer.
- If the consumer is physically present when the dealer informs the consumer that the consumer does not qualify for the terms offered, the dealer must return all items received from the consumer as part of the transaction. The dealer must have a refund check and the Trade-In keys immediately available.
- If the dealer informs the consumer by telephone, text, e-mail, letter, or other means without the consumer present, that the consumer did not qualify for the terms offered. The dealer must clearly disclose the consumer’s right to receive the immediate return of all items of value, i.e. trade in and down payment, when the consumer returns the vehicle. The consumer must have the actual ability to obtain these items of value and the dealer cannot simply inform them of their right to receive these items back. The dealer must have a refund check and the Trade-In keys immediately available. Dealers usually have a difficult time complying with this law as they usually sell the consumers trade-in prior to obtaining the financing.
Dealers shall inform consumers of these options and cannot hold the trade-in and down payment for ransom to have the consumer enter into a less favorable financing agreement. The Commentary 137-020-0020 (3) (z) makes it clear; “The consumer has an absolute right to walk away from the deal if the original offer is not going to be honored.” 137-020-0020 (3) (x); See Also, ORS 646A.90 (4)
In a failed Spot Delivery, can the dealer charge the consumer for vehicle damage and the mileage the consumer put on the vehicle? Yes, but only if the offer or contract to sell the vehicle provided in writing that the buyer is liable for: the fair market value of damage, excessive wear and tear, or loss of the motor vehicle while the vehicle is in the consumer’s possession. Additionally, if within 14 days of that date the buyer takes possession of the vehicle the seller sends notice to the buyer by first class mail that financing is unavailable, the dealer may charge for mileage the buyer put on the vehicle. ORS 646A.90 (4) (b) explains how the mileage is computed and notes, “The [mileage] charge may not exceed the rate per mile allowed under federal law as a deduction for federal income tax purposes for an ordinary and necessary business expense.” ORS 646A.90 (4) (b).
The above list is not exhaustive as many other statutory violations often occur during bushing scams. However, each situation is unique and these statues and rules are helpful in guiding the practitioner and consumer who is facing a spot delivery issue. ORS 646A.90 and 137-020-0020 (3) do not explicitly state a consumer has a right of action to sue under these statutes and rules. However, a creative practitioner can use these laws as a basis for a claim for relief.
Please remember the law is constantly changing and you should refer to the statute and applicable case law before relying on any of the information in this post.