Can a car dealer charge a restocking fee if my loan is not approved?

Reposted from the “Ask Consumer Ed” column of the Governor’s Office of Consumer Protection.

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?

A:  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 Governor’s Office of Consumer Protection’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 Governor’s Office of Consumer Protection by visiting www.ocp.ga.gov/consumer-services/filing-a-complaint, or 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.

Q: I lost my job last year when my company down-sized. I have gone through all my savings and even borrowed money from relatives, but I just can’t keep up with my mortgage payments. I’m afraid that the bank will foreclose on my house. Is there any help available to me?

Reposted from the “Ask Consumer Ed” column of the Georgia Governor’s Office of Consumer Protection:

A: Unfortunately, you’re not alone in this situation. Fortunately, there are several state and federal programs that can help some people having difficulties making their mortgage payments.

Your first step should be to contact your mortgage company directly. Many are willing to discuss your current situation and to try to come up with a solution, including a loan modification, deferment, or repayment plan. Look at your mortgage bill to find the name and contact information for your particular mortgage provider.

For consumers who began experiencing difficult times within the last 36 months, Georgia offers several programs. Go to www.homesafegeorgia.com to find a summary of the programs available, requirements for eligibility, and how to start the application process. These programs are provided in the form of a loan at 0% interest, and the loan is forgiven after five years if you stay in your home. The Georgia mortgage assistance programs are:

  •   Mortgage Payment Assistance – Provides monthly mortgage payments directly to lenders for up to 24 months to assist unemployed and underemployed homeowners.
  •   Reinstatement Assistance – Assists homeowners experiencing a hardship by

offering a one-time payment to catch up on missed mortgage payments.

Mortgage Payment Reduction (Recast and Modification Assistance) – Assists homeowners experiencing a permanent reduction in income by paying the lender a one-time $30,000 payment to lower the monthly mortgage payment.

The federal government also has several loan modification programs available to struggling homeowners. Unlike Georgia’s programs, the federal programs aren’t loans, but ways to change the actual terms of your mortgage to make the payments more manageable. You can find out more about these programs at www.makinghomeaffordable.gov. The federal programs include:

  •   Home Affordable Modification Program (HAMP) – Modifies the terms of the mortgage to lower the monthly payments.
  •   Principal Reduction Alternative (PRA) – Assists homeowners who owe more than their home is worth by reducing the total amount owed.
  •   Home Affordable Unemployment Program (UP) – Assists unemployed homeowners by temporarily reducing or suspending mortgage payments. BEWARE! Unfortunately, foreclosure prevention scams have increased because of recent tough economic times. Before consulting a provider who claims it can prevent your foreclosure, there are a few things you should do to avoid getting ripped off. For example:
  •   Avoid individuals/companies promising they can halt your foreclosure – These companies cannot guarantee a particular outcome, so their promises are unrealistic (and, most likely, a lie).
  •   Always send your mortgage payment to your lender or the mortgage servicer – Even if someone is assisting you in the process, make sure to send your payments directly to your mortgage company or someone approved by your mortgage company, not to any other intermediary.
  •   Avoid providers who charge up-front fees – Federal law makes it illegal for mortgage assistance relief services to collect fees before you enter into any negotiated agreement about your mortgage with your lender.
  •   Never sign over your deed to anyone without consulting an independent lawyer whom you select – Some companies will attempt to have you sign over your deed, often claiming that you’ll remain in the home under a lease while they negotiate on your behalf. This situation almost never ends well, because you no longer have ultimate control over the ownership (or occupancy) of your home. You should never sign over your deed without first consulting an attorney that hasn’t been chosen by the provider.
  •   Always read what you are signing– Some individuals may attempt to trick you into signing over the deed to your property by burying it in other paperwork. If you don’t understand every item and every page of all documents you’re being asked to sign, DO NOT sign any of them until you have received a complete explanation from someone whom you trust, and who does understand.

If the provider makes any promises, get all of them in writing.

Don’t do business with any provider that tells you not to contact your mortgage company– Any legitimate service provider should, and will, encourage open communications between you and your lender.

Before making any decisions, contact a counselor or organization to assist you in making the right choices regarding your mortgage. The following are great resources to learn more about the available programs and the steps required for each:

HUD sponsored counseling agencies may be able to provide free advice to help you avoid foreclosure. Locate an approved counselor near you by going to www.hud.gov.

The Home Ownership Preservation Foundation is a non-profit organization providing free counseling to help you learn about the programs available to you. Call them toll free at 1-888-995-HOPE (4673).

Working with mortgage companies to avoid a possible foreclosure can be overwhelming, but with proper support, you can make the best decision for your family and your home. Be proactive and seek out the programs and counselors that will work in your best interest. And, don’t wait until the last minute to do so – give yourself as much time as possible to seek a solution that fits your situation.