If you read the contract carefully, you signed a paragraph in the middle of the page titled “Dealer’s Right to Rescind” or “Dealer’s Right to Cancel.” It then refers you to a box on the back page of the RISC buried in a paragraph on the right near the bottom of the page. I have never known a dealer to ask a consumer to read the back of the contract.

This box actually tells you the dealer intends to sell (assign) the contract to a financial institution, and if unsuccessful, the dealer can demand you return the vehicle, and they will refund your down payment and return any trade-in vehicle. They must do this within 10 days of the purchase date. On the 11th day, they forfeit this right to have you return the vehicle. If you decide to stick with the RISC on its original terms, make sure you pay the monthly payments to the dealer in a timely fashion as outlined in the Payments section.

There is no state law giving this right to the dealer, it is only a contract provision that you unknowingly signed.

If you decide to sign a new contract, beware. This is the time to really read the proposed, new contract to see what changes the dealer has made. You can force the dealer to take out all of the high profit items and reduce the sales price. This is true especially when you have purchased a new car. If you do not get the terms you now want, walk away. The dealer must sell that new car to the next victim as a used car. They do not want to do that since the car will most often bring a lesser amount as a used car. Of course, many dealer will violate the law and sell that used car as new. The new customer then has an action against the dealer for selling a used car as new.

Many dealers also play “banker” and do not sell these contracts to a financer and never use this “Right to Rescind.” Such dealers typically charge 25%-30% interest, and you pay $10,000 for a $3,500 car. Consumers who accept these terms typically have poor credit and focus on monthly payments only, with no idea of the serious overcharges.

There are many reasons for the call back. Most often, the dealer has overcharged you for the car, and the contract price exceeds the guidelines of that bank. This is a scary proposition, because most banks will buy a contract with a sale price of up to 130% of fair market value and this does NOT INCLUDE extras such as service contracts. If you have exceptionally good credit, there is no cap and a bank could approve a contract of 200% of Fair Market Value. This sometimes happens when a consumer trades in another car with lots of negative equity that is rolled into the new RISC.

A second reason for the call back, is that the dealer KNEW he could not sell the RISC at that rate or amount financed, and PLANNED to call you back in a few days after you had shown all your friends your new car. That way, you would sign ANYTHING to avoid telling your friends and family members you did not qualify for automobile financing.

So, if your dealer tells you the bank requires you to return and sign a new contract, he is lying. They all do it. They do not want you to know what is really going on. The most often-used lie is, “The bank requires a larger down payment.” This will help to bring the amount financed into line with the bank’s guidelines.

When you get this call, the dealer is notifying you he cannot get a financial institution to purchase your RISC and he is opting to cancel the contract. Let him know you know your rights, you are returning the vehicle and you want your down payment and trade-in vehicle back immediately. YOU are now in the driver’s seat.

The dealer does not want to lose this deal. If you are a good negotiator, this is the time to put it to the dealer. The dealer may then lower the price of the vehicle (not to help you, but to bring the amount financed within a bank’s guidelines.) But at this point the dealer already has tried to rip you off. You need not sign a new RISC no matter what the dealer says.

The first thing you must know about a car deal is that there is no “loan” if you have the dealer provide financing. The dealer is in the business of selling sales contracts to finance companies.

If you read the contract carefully, at the very top the title reads “Retail Installment Sale Contract” (RISC). The Dealer is also named as “Creditor.” Thus, the dealer is financing the vehicle on the terms contained in the contract.

Most dealers sell these contracts to banks or other financial institutions. When the dealer says, “We are working on getting you financed,” that means he is working on selling your contract to a bank or other financial institution. If the dealer has not made a gross error, or has not exceeded the bank’s lending guidelines, most often you merely get notified from a bank that “Your loan was approved,” which is another lie. Remember, they (the bank?) are merely the “Holder” of the RISC, having purchased the RISC from the dealer under an “Assignment.”

You are not the “Customer” of this bank. The dealer is the customer, and the bank will always side with the dealer because the dealer brings this business to the bank. Should the bank ask too many questions of the dealer, or not purchase a high percentage of these RISCs, the dealer will take his business to a less “nosey” bank. Of course, the less nosey banks usually charge 20-25% APR or more.

If your credit is poor, the dealer may add $2,000-$4,000 or more to the price of the car because he knows in advance based upon your credit score that his bank is going to charge him up to 30% of the amount financed as a “discount” AND the interest rate of 20-30%. Dealers who charge a higher price to consumers with poor credit scores than they would charge to cash customers are violating California law.

However, it is difficult to prove a dealer has charged that higher price. And most people who have this low credit score merely want to know what the monthly payments are going to be and do not even realize they are signing a contract for many thousands of wasted dollars. By the way, the RISC is designed to focus your attention on areas of the contract that do not contain numbers, which discourages you from asking questions about the charges you are agreeing to pay.