I was racing FBM on an [AA] server, and this guy spun out and hes in the middle of the track (Shift+S dude) so I turned passed him and continued on. He caused a yellow flag but it penalized me for it. What the deuce?

Did LFS do that, or did their AIRIO do that? Can't help you if it was the latter.

Pics would be helpful.

Quote from bunder9999 :

Did LFS do that, or did their AIRIO do that? Can't help you if it was the latter.

Pics would be helpful.

Not sure, it was a yellow flag so that was LFS but it penalized me and then AIRIO's server message came up "You have caused a yellow flag". So I guess both, I honestly don't know.

LFS never penalizes for causing yellow flags, it has no such capabilities. It is Airio using the LFS data (yellow flags among them) for its statistics, one of which is the safety rating. Causing yellow flags is an event which will on Airio-powered servers decrease your rating. True, in your case the decrease was probably not quite OK, but as I said many times, the catch is the rating works very well on average, over time. Nobody has bad luck constantly and if someone is causing yellow flag in every other lap, there's something seriously wrong with his style...