Guess what - you are over a barrel with your pants down. You either buy a car from this guy at whatever price he decides to give you or you walk. You will not be able to get approved anywhere else. He has the only approval that you will get under his control.
I believe this is exactly what happened to you. It is slimy but I don't think it is illegal, or at least it's hard to prove there was any criminal intent.
I am not even that close to the situation what you put out.
I have 2 pre-approvals for 1.49%...from my credit unions.
When we finally confirmed to the numbers on what I am buying, I offered to make the entire payment using the pre-approval check from SFCU.
Here is where the problem started.
The business manager of the dealership comes and he says the price they are offering is the lowest and this deal can be done only if I agree to take financing from the HFS.
I asked what the heck they are you doing. All they told me is they are not making anything on the car deal. When asked to explain the rationale in financing with them, they explained that every year Honda gives certain amount of money to the dealer for financing and they would make commission out of it. All they tell me is just take the financing from them and I can pay back before the 1st statement gets generated.
I made a real big deal on the car but in the end they messed up my credit.
The stupid finance guy had no clue when I asked him why the heck he sent my application to 3 different banks other than HFS.
All he said was for best rates.. Damm...I myself had the best rates.