When consumers go in to an Oregon dealer to make a financed purchase of a vehicle, they usually walk out with completed documents believing they have finalized their purchase and financing. Nothing is farther from the truth. In fact, when a consumer enters into a financing agreement at a car dealer, very rarely is the contract final.
What Actually Happens at the Dealership?
If you have ever purchased a car from a dealer before, you are very familiar with the process. After you decide on a car you like, the salesperson asks, “how much can you do a month?” You tell them the number and they take it back to their manager to get the approval. They usually come back and say something like, “we can’t get you $400 per month but we can get $425.” After some back and forth, you both agree on a monthly payment amount that you can afford, and you go to the back room to sign the documents. You review the terms (the APR, the monthly payment amount, number of terms, etc.) and you and the dealer both sign. You shake hands, they hand you the keys, tell you “congratulations”, and you drive home with your new car. Everything is done, right? Well, not quite. There are some surprising things they likely did not tell you about.
- Financing was not final when you signed the financing agreement.
Yes, you read that right. The financing agreement (often called, Retail Installment Contract) that you and the dealer both signed is not final. At the time of signing, the dealer might have told you that they “got you financed at 4.9% interest and $410 per month with Oregon Community Credit Union.” What likely happened was they did not even submit an application to a lender, let alone receive an approval. What they actually did was they estimated that they can probably get you financed at 4.9% interest and $410 per month with Oregon Community Credit Union. The retail installment contract that you signed was an agreement where the dealer is giving you the loan for $410 per month with the option to sell that loan to a lender at that rate.
- They can change the lender without your approval.
After you sign the retail installment contract with the dealer, it then has 14 days to find a lender who is willing to purchase the loan at that rate. Even if the retail installment contract specifically states that the lender is Oregon Community Credit Union, the dealer can unilaterally choose to sell the loan to whatever finance company they want, as long as the loan terms remain the same. So don’t be surprised if you get a welcome letter from United Finance Company telling you to make your payments to them.
- You may have to return your newly purchased car.
Oftentimes, life isn’t that neat in the auto finance world. Sometimes, the dealer cannot find financing at the rate that they promised you in the retail installment contract that you and the dealer signed. Luckily for them there’s a built-in condition subsequent in the contract that allows them to either finance the loan in-house or cancel the loan, if they can’t find financing within 14 days of signing the contract. What does this really mean in practice? If they don’t like the contract you signed, they can back out of the deal, but if you don’t like the contract you signed, you cannot. If this does not sound fair to you, this is where the law steps in to make it slightly more even.
If the dealer calls you to sign new paperwork because they were not able to find financing for you at the rate you both agreed on, the law allows you to unwind the deal and get all of your money back. The dealer may attempt to keep your down payment, but that is illegal under ORS 646A.090.
- They can cancel the deal if they want to.
If you’re thinking all of this doesn’t sound right, you’re not alone. Dealers often present the terms in the finance office as if that is a final and binding contract, and they rarely say there’s an option to unwind the deal if the financing fails. If the consumer wants to unwind the deal the next day because they find out they cannot afford the payments, dealers never allow the consumer to unwind the deal. But if the dealer can’t fund the deal, they can get out of the contract, risk free. This is clearly not a fair situation for consumers.
- We need a change in the statute.
That is why in 2023, lawmakers proposed a bill (HB 2801) to prevent dealers from creating an option to cancel the contract. What this means is if the dealer and the consumer sign a contract, that contract is final at the time of signing. Although HB 2801 seems like a no-brainer, it did not pass out of committee. The bill was sent to a workgroup, and it will be discussed outside of committee with the hope of coming back to life in the next session. With any luck and lots of hard work, HB 2801 will pass, and the statute will finally reflect what the average Oregonians believe is happening when they sign a contract to purchase a car.