Used-car fraud ring targets payment systems

October 28,2017

Dealers and lenders are getting stung by a new type of used-vehicle sales fraud that takes advantage of lenders' automated payoff systems, the CEO of a Florida reseller warns.

A ring of well-organized criminals has developed a modern-day version of kiting checks and title fraud to sell dealers high-end used vehicles that have been fraudulently obtained, says Mark Maida, CEO of AutoBuy, of West Palm Beach, Fla. The company buys vehicles from consumers and resells them directly to dealerships and via auctions.

Maida said his company got burned once in 2016, and he's heard from other dealers and lenders who are encountering similar cases of fraud throughout Florida.

"They take advantage of lenders' automated phone-in payment systems," Maida told Automotive News. "The systems automatically record payments as made before the checks actually clear. By the time the lender knows the payment wasn't actually made, the crooks have cashed the dealer's payoff check and disappeared."

How it works

Using a hypothetical example of a 2017 luxury SUV with an original loan balance of $54,000, here's how the scheme works:

1. A crook posing as a normal consumer comes to a dealership or other used-vehicle buyer to sell the vehicle.

2. The dealership and crook agree on a purchase price of $48,000.

3. The day before, the crook fraudulently "paid off" $36,000 of the vehicle loan through the lender's automated phone payment system, verbally providing a fake checking account number

4. The dealership calls the lender for payoff information and gets confirmation that the current loan balance is $18,000 ($54,000 minus $36,000).

5. The dealer deducts that $18,000 confirmed balance from the $48,000 purchase price and issues a $30,000 check to the consumer.

6. Ten days later, the payoff payment to the lender is declined, but the crook already has cashed the dealership's check and disappeared.

7. The lender and dealer must figure out how much of the loss each must absorb.

"They can sue each other, but they usually settle out of court," Maida said. "But either way, they usually each have legal fees plus the actual fraud loss."

Maida said AutoBuy changed its process at all eight of its brick-and-mortar locations to detect the scheme after its Orlando site was defrauded last year,.

"These people come in with clean titles and legitimate-looking driver's licenses for ID," he said.


Maida said lenders and dealers should revamp their internal processes to combat this type of fraud.

He believes lenders shouldn't automatically credit loan payments made online or through automated phone-in systems until the transaction clears the customer's bank.

Maida thinks lenders need more robust payoff alerts for when there is suspicous payment activity. And despite consumer privacy laws, lenders should find ways to share more information about payment histories when dealers make payoff inquiries, he said.

"I know of one case where a crook made 49 'payments' of $1,049 in one day," Maida said. "That should have set off alarm bells somewhere."

Source - Automotive News