We have received a few inquiries lately asking what consumers’ rights are when an automobile dealer cannot get a buyer’s financing approved. The short answer is that if a buyer cannot obtain a dealer-assisted loan, the conditional sales agreement is rescinded and all consideration must be returned to the buyer. See Civil Code section 2982.9.
Can a dealer attempt to change the conditional sales contract to make it acceptable to another lender?
The dealer can ask the buyer to pay a higher interest rate, make a larger down payment or obtain a co-signer, but the buyer is not obligated to do any of these things. The buyer can simply drop off the car at the dealership and get all of his/her money back. It makes no difference if the buyer has driven the new car for 10,000 miles; if a dealer cannot get the buyer financed under the terms and conditions of the original contract, the buyer gets all of his/her money back.
What happens if the buyer was trying to obtain a loan from someone other than the dealer but was unable to do so?
If the dealer knows these facts and delivers the vehicle pursuant to a one-pay contract for which the buyer is unable to get approval from his/her credit union or bank, then the dealer has a duty to refund to the customer all the money he has received.
What happens when there is a trade-in involved?
If the buyer leaves his/her motor vehicle with the seller as a down payment and it is not returned by the seller for whatever reason, the buyer may recover from the seller either the fair market value of the motor vehicle or its value as stated in the contract or purchase order, whichever is greater.
In this tight money market, financing is getting harder and harder to obtain. Manufacturers have great incentives for those with perfect credit but little reward for the imperfect. A dealer must be sure to qualify a buyer before delivery or he will find himself refunding the down payment and adding a used vehicle to his inventory.
Erica A. Stuckey