Some unscrupulous dealers deliver on that promise by hiding the cost of the old loan in the paperwork of the new one, often by extending the length of the loan.
The Federal Trade Commission has started cracking down on that deceptive practice. The Huffington Post reported that, on Wednesday, the FTC announced settlement agreements with five U.S. dealerships, which have now agreed to stop making those loans.
Since it was the first time the FTC has stepped up enforcement on such deals, the dealers were not fined. But Malini Mithal, assistant director of the FTC division of financial practices, tells The Huffington Post, "We're starting to take it seriously."
Four dealers rolled the negative equity into the new car loans, according to the FTC. They were: Ramey Motors in Princeton, W.Va., Key Hyundai in Manchester, Conn., Hyundai of Milford LLC., also in Connecticut, and Billion Auto in Sioux Falls, S.D.
A fifth dealer, Frank Myers AutoMaxx in Winston-Salem, N.C., made buyers pay off their old loans in cash prior to releasing their new cars.