Moral of the story there is to read before you sign (nobody is forced to sign a contract)....so all in all I don't feel too bad for your friend (yes, sucks he got a unethical finance person that may not have explained this to him), but in no way do I feel it is a valid reason to hide a bike when you know they are looking for it. Sure what they did was not cool, but in the end it was his fault and he could always have paid the bike off when he learned that....sure may have taken a additional loan, but it would have been better than ruining his credit.....but wait, him playing games like hiding his bike has probably shot his credit so no loan for him now. Let's hope he doesn't try to finance anything again EVER because he can bet that is on his record.
P.S. And usually people are given "interest only" loans because they cannot afford a normal payment and want a cheap payment...used for auto is pretty crazy. Seen it on a house and did it once after a divorce to save my house, but you can believe I got out of that loan the minute I could re-finance.
And there are advantages of "interest only" loans so it is not really something that should be illegal; just used the proper way. This article gives some good examples of when to use them
http://www.fedprimerate.com/interest-only_loans.htm
So people can justify all they want in their heads, but the banks don't care and it will still ruin your credit.....and one thing I learned is credit is everything nowadays! Banks/loans can be shady though for sure and sucks so many have to take advantage of people who do not know better.