Spot Delivery Sales are Often Illegal. But even when they’re not, you still have rights.
If you have credit problems in your past, then there is a chance you have been subject to a spot delivery auto sale scheme. Spot Delivery? What is spot delivery? A spot delivery is a certain type of car deal where the buyer enters into a tentative or conditional sales agreement to buy a specific vehicle on agreed upon terms, but subject to final approval by a third-party finance company.
Basically, here’s how they work:
- You find a car you like and negotiate the terms of purchase with the dealer.
- You sign a conditional sales agreement – the condition being that if the dealer cannot find financing for the transaction, the deal is off.
- The dealer sends your credit application to several finance companies, hoping one of them will buy it.
- If one of them accepts your contract, then the deal is final and you’re good.
- If none of them accept your contract, the dealer will do one of two things: either a) they’ll try to rewrite the contract on worse terms to get a lender to accept it (like, maybe they wouldn’t approve you at 18% but they’ll approve you at 22%), or b) the deal is cancelled.
- If the deal is cancelled, then the entire contract is void. You have to return the vehicle in good condition; they have to give you all your money back and give you your trade in (or the exact trade-in value) back. They cannot deduct from your down payment except for a reasonable charge for the miles you put on the vehicle. Which should never be more than a couple hundred bucks.
- If they try to rewrite your contract, you need to know why, and you need to be sure that the contract had an enforceable spot delivery clause. I recommend contacting an experienced consumer protection lawyer to review such a deal.
Seems simple, right? Not really, and the more complex a deal is, the more opportunities there are for fraud. Particularly in car sales. So here are a few things to watch out for:
- EVERY FINANCE COMPANY AND DEALERSHIP WHO DENIES YOU CREDIT MUST PROVIDE YOU A WRITTEN NOTICE OF DENIAL WITHIN 30 DAYS OF RECEIVING YOUR APPLICATION. THE NOTICE MUST TELL YOU WHY YOU WERE DENIED. If you didn’t get a notice within 30 days of them receiving your application, they are violating the Equal Credit Opportunity Act, and you need to talk to a lawyer about that.
- Even if you applied for the loan in person, they still have to give you a written notice of their decision.
- If they don’t approve you FOR THE PRICE, FINANCE CHARGES, AND INTEREST RATE you requested, then it’s a counteroffer and they have to send you the notice telling you why they didn’t grant the credit you asked for. Unless you accept their counter. If you go with another lender, then they still have to tell you why.
- The Spot Delivery Agreement (it may be called a “bailment agreement”) should be clear and conspicuous and part of the sales contract. If it’s on a separate piece of paper, you should have an attorney review them.
- If they take the vehicle back, they have to give you your down payment and trade-in back. If they’ve sold your trade-in, make sure that they properly acquired title and that they give you a check for the full amount of the contract trade-in value.
- If they repossess the vehicle, they have to let you get your property out of the vehicle. They can’t keep your stuff.
- If they repossess the vehicle, they cannot hold you liable for any deficiency balance on the contract (because there was no contract, remember!).
It is possible for a Bailment Agreement/Spot Delivery sale to be done in a manner that is 100% legal. But they usually aren’t. If you think that something was done wrong, you need to talk to an attorney ASAP.