Dealers Being Targeted by Used-car Fraud Ring
A new type of sales fraud is taking advantage of lenders’ and dealerships’ automated payoff systems. Basically, criminals have begun selling high-end used vehicles that have been obtained illegally and vanish before anyone is the wiser.
Mark Maida, the CEO of AutoBuy, has said his Florida-based company was on the receiving end of the scam in 2016 and wants to warn other prospective buyers before the same thing happens to them. He doesn’t believe it was an isolated incident and claims there have been other dealers and lenders across the state that have been affected by the swindle.
“They take advantage of lenders’ automated phone-in payment systems,” Maida told Automotive News in an interview. “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.”
Here’s how the scam works. A criminal seeks out a buyer, typically a dealership, to sell a higher-end vehicle. However, before a final price is negotiated and the deal made, the crook has already “paid off” a significant portion of the vehicle loan through the automated payment system using a phony checking account. The dealership then contacts the lender for payoff details and issues a check to the phony customer for the difference. Over a week later, the payoff to the lender is declined but the criminal has already cashed the check and skipped town.
“[Dealers and lenders] can sue each other, but they usually settle out of court,” Maida explained. “But either way, they usually each have legal fees plus the actual fraud loss.”
Maida said lenders and dealers should really consider altering their internal processes to avoid being swindled by this type of fraud. Automatically crediting loan payments online or via phone-in systems are a mistake, he says. The best practice is to wait until transactions are cleared by the customer’s bank and not to be too trusting — even if everything appears to be above board.
“These people come in with clean titles and legitimate-looking driver’s licenses for ID,” he said.
A staunch consumer advocate tracking industry trends and regulation. Before joining TTAC, Matt spent a decade working for marketing and research firms based in NYC. Clients included several of the world’s largest automakers, global tire brands, and aftermarket part suppliers. Dissatisfied with the corporate world and resentful of having to wear suits everyday, he pivoted to writing about cars. Since then, that man has become an ardent supporter of the right-to-repair movement, been interviewed on the auto industry by national radio broadcasts, driven more rental cars than anyone ever should, participated in amateur rallying events, and received the requisite minimum training as sanctioned by the SCCA. Handy with a wrench, Matt grew up surrounded by Detroit auto workers and managed to get a pizza delivery job before he was legally eligible. He later found himself driving box trucks through Manhattan, guaranteeing future sympathy for actual truckers. He continues to conduct research pertaining to the automotive sector as an independent contractor and has since moved back to his native Michigan, closer to where the cars are born. A contrarian, Matt claims to prefer understeer — stating that front and all-wheel drive vehicles cater best to his driving style.
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A lot of the time, ACH payments clear overnight. Sometimes, it takes two or three days, particularly on banking holidays and weekends. So, depending upon how the lender / creditor handles the pending payment, an unscrupulous consumer can really take advantage of that latency time. I've noticed this mostly with credit cards. In my experience, credit card providers will apply a payment toward the balance, but will not actually reset the available amount to spend until the payment clears. So if I max out a card with a $10,000 limit, meaning that I can spend $0 more dollars on it, and then make a payment of $6,000, it'll register immediately (which matters in terms of due dates and credit reporting) and the credit card provider will say my balance is only $4,000...but they won't reassess my available amount to spend and the available amount will remain at $0 until that $6,000 clears. However, I have an acquaintance that once got into a spot of unemployment and was able to do this three or four times in a row using a credit card with a rather low limit of $2,500. He'd max it out, the submit a payment for that full $2,500 that he knew wouldn't clear. But while the credit card issuer was waiting for the ACH payment to clear, they'd reset the available amount back to $2,500. He'd max it out again with a combination of cash advances and pricey electronics that he could easily sell. Then, when the payment bounced back, the balance would of course be higher than before because they'd cancel out the failed payment, and add the old balance to the new one he'd just racked up. He would then submit a payment for the new balance, the available amount would go back to $2,500, and he'd rinse and repeat. This is how he racked up an actual $10,000 balance---not including interest and late fees---on a card with a limit one-fourth that amount.
I have known a few people, aquaintence's, that shifted substantial credit card balances from one card to another. Thereby getting six months, or more, of low/no interest charges and a reprieve on collection calls. Several decades ago someone tried to work a similar, but less sophisticated, scam at my business. We overhauled the manual trans on his vehicle, getting approved estimates and signatures. The job was completed mid-week, but he did not pick it up until late Friday. He was not a new customer so I accepted a check. After he took the vehicle away I thought that he had acted odd and tense. It was 5:45 and the bank was still open so I deposited his check along with others. On Monday there was a very angry sounding message on our answering machine. The customer claimed that the transmission had started jumping out of gear soon after he left the shop and that he had stopped payment on the check. I thought,"Oh well, there goes some more money." as disputes are part of doing business. A week or so later the fellow called back even angrier than before. The check had gone through the bank over the weekend before the stop payment order was done. He claimed that the jumping out of gear problem was even worse now. I told him to bring the vehicle in. I drove it and could find no problem with the transmission. I asked him to drive me around and demonstrate the jumping out of gear. After at least a 20 minute drive and no jumping, he angrily stated that, "It was jumping out of gear all the way over to your shop." I told him to bring it back if the jumping happened again. Never saw him again. I strongly suspect that he thought he would get a "free" trans overhaul with this scam and he was quite upset when it did not work. Note that he had not come back to the shop until it was found that his stop payment had not worked.