September 24, 2014
Car loan denied; can dealer charge restocking and mileage fees?
Dear Consumer Ed:
Is it legal for a car lot to charge a re-stocking fee and 50 cents per mile on a car because the loan was not approved?
Consumer Ed says:
It sounds like you entered into a conditional sales agreement known as a “spot delivery” transaction. With spot delivery, the buyer takes possession of the vehicle “on the spot,” upon making a commitment to finance the vehicle, but not yet having a definite arrangement for financing with a bank or finance company. It would appear that you negotiated loan terms with the dealership and agreed to buy the car only if a lender agreed to finance the deal according to those terms. The car remains the property of the dealership until a lender finances the deal. Since the dealership was not able to find a lender to finance your deal, the dealership may be entitled to order you to return the car and to pay for its temporary use.
The amount that you may be charged for using the car depends on the agreement you signed prior to taking the car off of the lot. Dealers who offer spot delivery usually require potential buyers to sign a “bailment agreement” outlining what would happen if the dealer was unable to secure financing with a bank or finance company. If you signed a bailment agreement, and if it includes a reasonable restocking fee and per-mile fee, then these fees are likely legal.
However, even if the fees are legal, the dealer could still be in violation of the Georgia Attorney General's Consumer Protection Division’s Auto Advertising and Sales Practices Enforcement Policies. For example, if the dealer represented that you had been approved by a prospective lender prior to your purchasing the vehicle, it would be unfair and deceptive for the dealer to require you to return the vehicle for an alleged failure to obtain lender approval. In that event, the dealership should also return any down payment you made on the vehicle if you are denied credit approval and choose not to pursue any other financing options.
You have additional rights if you traded in a vehicle as part of your transaction. First, the dealer should have retained both title and possession of any such vehicle until financing is actually approved. Second, if you choose not to execute another finance agreement for the purchase of your vehicle, the lot must immediately return your old vehicle to you. If you believe the car lot engaged in any of these prohibited practices, you may file a complaint with the Georgia Attorney General’s Consumer Protection Division by calling 404-651-8600.
To avoid this situation in the future:
- Prepare in advance. Shop for financing as you shop for a vehicle. Ideally, arrange for financing ahead of time through your bank or credit union so you know the amount of money you can borrow. At least contact them to find out what interest rate you would qualify for, so you can compare this with the dealer’s financing offer.
- Read through all documents thoroughly before you sign. If there are any blanks left in the contract, you and the dealer should complete them before you sign. Ask questions if there are items you don’t understand.
- Get everything in writing. Insist in advance on a written assurance that if your financing should fall through, your deposit and your trade-in will be returned to you; or, if credit terms change, you may cancel the deal.
- Wait until financing has been approved. If you do work with the dealer to secure financing, seriously consider waiting until financing has been approved before you take possession of the vehicle.