November 29, 2023

Car Auto Finance

Car Auto Finance FOR Everyone

Forced financing: a new upsell that might turn you away from a car

An Oshawa Subaru shopper is far from the first bitten by this unsavoury practice

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Imagine you’ve finally found your dream car. Oshawa resident Tami Hamilton and her husband were thrilled to find a 2017 Subaru BRZ Sport Tech on a local dealer’s lot. For the auto enthusiasts, it was to be their long-awaited “fun” car. Despite record prices being commanded — and paid — in this volatile used market juiced by extreme global shortages, their experience with their sales rep was smooth. “He was terrific,” said Tami. “The trouble came later.”

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“Once we were in the finance office, we were told we had to take financing on the car. I said we didn’t want or need financing. We just wanted to purchase the car. We had the money.”

Instead, what played out was a dog’s breakfast of excuses, manipulations, and while not illegal, certainly questionable reasons why they had to take the offered financing. 

“He (the dealer’s business manager) told us doing it this way protected us from wholesalers. He said wholesalers are going around buying up stock, so this was to protect real customers. He told us there was a problem paying upfront due to COVID concerns, but of course, it would have been a bank draft, not cash. I asked if there would be fees for financing, and he said of course. I asked if this was standard protocol, and he said Subaru was fine with it. He said I was the first “problem” he’d had over this, though we later were told they’d lost five sales already over it. He said if we didn’t buy it, someone else would. He wasn’t worried. I asked if those costs could be deducted from the sale price of the car. He said no. So we left.”

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But they wanted the car. In the past, regulators and consumer advocates would tell you to vote with your feet — leave a bad dealership, go somewhere else. We live in altered times, though, and with stock sparse and used car prices sky-high, it’s become a very lopsided seller’s market. Hamilton went back in and tried again. Knowing an auto loan is “open”, Hamilton knew she could pay it off at any time.

“I said I wanted my deposit to be everything except for the seven months of financing they were forcing on us. I was told they would not take more than half the price of the car as a deposit, I had to finance the rest. I was also told I couldn’t cancel the loan until the seven-month point because they would lose their fee from the lender. He made me sign a paper that said if I closed the loan before seven months, they would charge my credit card $750 to make up that fee. I asked them to use my bank, CIBC. The papers came back with BMO on them.”

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OMVIC, the Ontario sales regulator, says, “as per the Motor Vehicle Dealers Act, it is not illegal for an OMVIC-registered dealer to ask a consumer to take their financing as a requirement of sale and as the motor vehicle sales regulator we can only enforce the legislation and associated regulations. Note that auto loans are “open loans”, meaning the consumer can pay them off at any time, without penalty (but it’s always important to confirm this in the terms of any agreement). That is why in the past we have recommended that the consumer walks away and shops elsewhere if they are uncomfortable with being asked to take the dealer’s financing or other extras.” They go on to say they also expect dealers and salespeople to act with the highest level of integrity, and lying could trigger an investigation by the regulator.

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A sales manager unrelated to this incident told me his dealerships don’t do this, though he’s aware of some that do. “Sellers absolutely want buyers to finance their purchases. It gives us a chance to sell things like extended warranties, and instead of seeing $2,500, they see a few bucks a month,” he said bluntly. “But forcing someone to take financing? No way.” He also showed me two examples of finance contracts with no charges for early termination, and they even pay back administration fees. He also notes that while they receive no fee from some lenders, there is a sliding scale for others. BMO pays.

George Iny at the Automobile Protection Association (APA) says it’s not uncommon. “Some dealers are being sneaky because the supply of new vehicles is limited, and some mass-market manufacturers don’t want them selling new vehicles for more than the MSRP. By financing a new vehicle through a lender, the dealer can collect a healthy commission from a third party that escapes the scrutiny of the carmakers. For used vehicles, making financing mandatory boils down to greed and ineffectual enforcement by dealer regulators.”

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2017 Subaru BRZ
2017 Subaru BRZ Photo by Neil Vorano

The dealership has not responded to an enquiry asking if this is indeed their policy, but Subaru Canada stepped up immediately. “We have been troubled since learning of the situation and do not condone the actions taken by the dealership’s finance and insurance office in this instance. We do not stand behind forced measures and are addressing this matter with the individual dealership to ensure these actions do not reoccur. Subaru Canada and our dealer network take great pride in the trusted relationship we hold with our customers and we are taking this matter very seriously.”

For Tami Hamilton, she just wants this to serve as a warning. “I figure all this cost us an extra thousand dollars. We’d saved up the money to avoid paying interest, but for someone else? If they had a worse credit rating, it could have cost them a lot more. I look at the car now, and it should be fun. But mostly? I just feel bitter.”

If you’re in the market for a car, new or used, and you don’t require or have arranged your own financing, make this the first question you ask when you walk through a dealer’s door. Don’t look at the stock and don’t fall in love unless you know exactly what their business practices are. 


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