By on October 29, 2017

cars dealer dealership, Image: HappyAlex/Bigstock

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.

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39 Comments on “Dealers Being Targeted by Used-car Fraud Ring...”

  • avatar
    qwerty shrdlu

    Step one is “obtained illegally”, but the article doesn’t say how. I guess this means buying the car at another dealership with a fraudulent loan and then making the fake payment before the first installment is due, but it would be interesting to know the rest of the story.

    • 0 avatar

      Yes, from a car buyer’s perspective, it would be helpful to know how these high end cars were “obtained illegally”. It’s not clear the dealers learned of the scam before selling the vehicle to someone who will then lose the car because it was stolen or otherwise ownership was transferred illegally. The scam hits the dealers first, and it’s their auto-pay system at fault, but what about their retail customers?

  • avatar

    Way too complicated for me to understand.

    Is this what happens?

    “A criminal seeks out a buyer” Maybe it would help if that read “A criminal seeks out a buyer for the expensive used car they are trying to sell”

    I guess the used car has a significant loan on it? If the car was obtained illegally how does the seller know the bank holding the loan and the amount of the loan?

    How in the world does a bank zero out a loan without receiving payment for that loan unless from a high volume trusted customer? In my limited experience the bank usually does not actually clear the loan for a number of working days after it is paid off. I would see this might happen if the loan was between the dealer and the bank but that does not seem to be the case here. How does the crook get into the “automated payment system” if they are not a well known dealer themselves?

    “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.”
    Also confusing to me. Maybe a set of hypothetical numbers would help clarify this part.

    • 0 avatar
      Kyree S. Williams

      I don’t think the bank is zero-ing out the loan, because the loan balance isn’t being paid off in its entirety. Presumably, the perpetrator pays off enough of the balance to bring himself into a position of positive equity, so that if he were to sell the car to the dealer—and dealers often do buy cars from people outside of trade-in scenarios—he’d receive a check for the difference between what he owes and what the dealer paid him for the car.

      So…let’s say the crook originally has a low-mileage 2015 750Li M-Sport with a loan balance of $45,000. He knows he can get $34,000 for it from the dealer (who will, in turn, retail it for around $42,000). But of course, that $34,000 is less than the $45,000 owes on the car…meaning that he’d give the dealership another $11,000 for the privilege of selling them the car, so that they could pay off the entire loan. So what he does is, prior to selling it to the dealer, apply a payment toward the principal of, let’s say, $15,000, via check or ACH. The bank goes ahead and applies that payment toward the loan balance prior to it actually clearing the bank. Now, on paper, he owes $30,000. When he goes to the dealership and they offer him the $34,000, he accepts. The dealer calls the lender to get an up-to-date payoff quote, and they say he owes about $30,000…because they think his $15,000 payment will clear the bank. The unsuspecting dealer goes ahead and completes the deal, paying off the remaining $30,000 and cutting him a check for $4,000…which is the amount left over once they “pay off” the loan. Some time later, the dealer requests a clear title and the lender says, “Wait a minute. There was a $15,000 payment that didn’t clear; therefore you still owe another $15,000 on this car before we release the lien.” Now the dealership is left holding the bag. They owe the lender $15K before they can obtain the title to the car and sell it…*and* they essentially gave away $4,000 to the buyer that defrauded them. So now they’re out $49,000 on a car worth $34,000 wholesale. Even when they sell that car at its retail price of $42,000 or so, they will lose $7,000.

  • avatar

    OK, Matt, no one who has commented so far understands what is happening. Please restate the scam with more details so we can learn.

  • avatar

    There’s a scam being run on Craigslist, in which an almost new looking used car is listed at at about a third of private party value. It’s so obviously a scam that I don’t even respond. How it plays out, who knows? Most likely they ask for a deposit online to hold the car, and then disappear.

    • 0 avatar

      My brother (knowing it was too good to be true) replied to someone selling a Sienna at a low price. The seller was local – until he started to converse. Then”she” was in Vegas about to be deployed in the military. He was to pay and then wait for shipment of the van. End of conversation.

      • 0 avatar

        I guess it’s a “law of large numbers” game. Try enough times, and eventually somebody will fall for it. But those lowball ads are typically beyond easy to ferret out. Sad that there are folks that would actually go through with such a deal.

    • 0 avatar

      That’s a pretty common one. Typically they are selling it in a hurry (being deployed, have to return to home country, relative passed away, etc) and that ends up being their justification for why it is “priced so low”. Then when you’re ready to buy, sight unseen (because it’s such a steal, even if it has issues you’re still making out) they want you to pay for it and pay shipping. Usually they try to make it sound like a secure transaction saying that they are using the “eBay escrow service” or “Amazon escrow service” or something like that, presumably with a fake web site to go with it. Obviously you send them the money and never heard from them again.

      • 0 avatar

        I think it’s like the Nigerian scams – which are full of typos as that self screens intelligent people who will otherwise drop out later anyhow, without them wasting the time of the fraudster. An inconceivable price does the same.

  • avatar

    It reads to me like the scammers are being out-scammed! Surely it’s an inside related thing? How many others would know about that phone pre-approved?

  • avatar

    Isn’t this just a more complicated check kiting scheme? The scammers are taking advantage of the 14 day check clearing period. Most people don’t realize that when they deposit a check into their bank account, the bank is required to give them access to the money almost immediately, but in reality it takes 14 business days for the check to clear the system (be sent to the bank the check was written from and payment to be sent back).

    So these loan companies are crediting the loan accounts, but in reality are waiting up to 2 weeks for their money. In that time span, the scammer sells the car to a dealer, most of whom cut a check on the spot. Then that check is cashed and the scammer has the money, long before the banks and the dealer realize it was a scam.

    • 0 avatar

      “Most people don’t realize that when they deposit a check into their bank account, the bank is required to give them access to the money almost immediately, but in reality it takes 14 business days for the check to clear the system (be sent to the bank the check was written from and payment to be sent back). ”

      Um, no. Well….not *anymore*. That’s how it used to work when the earth cooled and dinosaurs dug in your quarry pits, but the Check 21 Act–enacted 13 years ago yesterday–changed all that. Now, the check clears the system…overnight.

      Kiting is all but gone, and there’s no reason for something like this still to be scammable.

      For those who haven’t paid close attention:

      * seller has a car, no doubt acquired with a lien–BHPH? Regular bank? A very attractive car.

      * seller uses the cheap and flimsy phone payment system to phone in a payment using phony bank credentials; maybe he takes the lien down from $20K to, say, $5K (making this up here) with a fake $15K “payment”

      * flimsy phone payment system says, “OK, I got your $15K!” despite having no actual knowledge that everything went well

      * seller immediately finds car lot to buy his car; a greedy lot, who thinks he can sell that car for $30K

      * car lot calls lender right away, finds out that indeed the “lien” is now “down to $5K” because that’s what the flimsy system is telling the world

      * car lot cuts a $5K check to pay off that remaining “$5K lien”, and cuts a $15K check directly to the seller; car lot owner is already counting that $10K profit he plans to make with this car

      * seller cashes the check and disappears; days later the actual financial system behind the flimsy phone payment thing reconciles itself and discovers that no indeed, the “owner” did NOT actually pay off $15K like he told the phone system he did

      * therefore, the original lender still owns title to the car and will repo it; the car lot that thought he bought the car, actually didn’t–and is now out the $15K he paid the guy who “sold” it to them. (In my scenario, if the car lot actually did pay $5K to the original lender, he’ll get that back.)

      I’ve said it all my life: only greedy people and crooks can be conned. The whole modern car sales system is a perpetual house of cards, just waiting for one dangle of Jan’s bracelet to knock it all down to the ground.

      The dealership owners live and die by pumping cars and money through the system, and they’re so eager to have one more unit to pump that they’ll believe anything like this. Wait to call the bank on Monday? Oh no, that’ll never do! We have to do this deal RIGHT NOW!

      We bought a 2007 Honda van a couple months ago; completely loaded and only 33K miles on the clock with new tires, we paid $9K from a private owner. After taxes and cleaned up with some extras and service we added to it, call it $10K out of pocket. For grins, we went and looked at a new Pacifica; the guy offered us $6K for our van.

      These greedy dealers are slobbering so hard for these deals, they’re ignoring every warning bell that should be going off in their heads.

      Only a crook can be conned, and these dealers are prime examples.

      • 0 avatar

        Thank you for the explanation. I vividly remember when Check21 went into effect, and reading articles on it which went into the history of checking. Fun fact, there used to be pilots that flew private jets full of cancelled checks all over the country. I remember my parents receiving a huge bundle of them each month in the mail and my dad spending a Saturday morning reconciling the check book. Now, once a week I check mine online and it’s rare for a check to take longer than a week to be fully processed by my bank.

        • 0 avatar

          Yup, I used to work in transportation. We’d regularly carry cases (we called them POD cases) of checks around. And they weren’t cancelled yet until they got back to the bank. I’d regularly sign for cases worth $20-$30 million in checks.

          We also used to have to make the deposits at our local Federal Reserve branch. There were several deadlines throughout the day, and you’d be bringing in millions of dollars in checks, and if you missed the cutoff time the bank would lose out on tens of thousands of dollars in interest because they would lose a half day’s interest payment. And those cutoff times were when we’d meet with the drivers from other banks and swap the checks that we had for them. It was an amazingly manual process, even in the 90’s and 00’s.

      • 0 avatar

        Thank you for the detailed explanation

      • 0 avatar
        Kyree S. Williams

        I could honestly attribute this to ignorance because it is so bold a crime that you wouldn’t expect it to happen with a car. Unlike many other similar types of payment-clearing crimes, the person in question’s actual identity—unless they used a fraudulent means to acquire the car—would be tied to the loan, the trade-in transaction, and the act of cashing the check that the dealer writes them, so you’re dealing with someone truly desperate enough to be willing to skip town for a measly four or five-figure check. And that’s a rare kind of person.

        Also, it’s not uncommon for people to want to trade-in or outright sell cars in which they have a high amount of equity to dealers. So that’s not too suspicious, either.

        But, the way I see it, this is the sort of thing that only has to happen once for a dealer to get wise, unless that dealer is so greedy that it is willing to risk not thoroughly verifying the state of the loan. And it really doesn’t need to be a disturbance to one’s normal business practice; it just requires a couple of extra questions. When the dealership phone the bank, instead of just asking what the balance / payoff quote is, it should ask if all of the payments have cleared. Okay, it might not be a big deal if an ordinary $300 monthly payment is still pending…but if someone just put $15,000 toward their principal, ask if it has cleared yet. If it hasn’t…tell the buyer you need to wait until it has before proceeding with the transaction.

      • 0 avatar
        Kyree S. Williams

        “We bought a 2007 Honda van a couple months ago; completely loaded and only 33K miles on the clock with new tires, we paid $9K from a private owner. After taxes and cleaned up with some extras and service we added to it, call it $10K out of pocket. For grins, we went and looked at a new Pacifica; the guy offered us $6K for our van.”

        That’s not a good deal for you, but look at it from the dealership’s point of view. A 2007 vehicle, no matter how mint, is going to require a special buyer for a new-car franchise. That buyer will either need to have cash or the ability to get a signature loan and essentially buy it as a cash transaction, because it’s too old to be financed with a traditional auto lien. Plus, by being unable to supply financing for it, they’re losing out on the—admittedly disingenuous—opportunity to pad the financing terms and mark up the interest rate, or sell overpriced aftermarket warranties and gap insurance under that 110% LTV approval that lenders often provide. Thirdly, they themselves can’t take out a floor-plan loan on a car that old. They’ll have to buy it with their own operating capital, which means a lost opportunity cost if they have to carry it on the books for a while before they can sell it and recoup the money spent on it.

        Indeed, it’s likely they’ll end up being unable to sell it in a reasonable amount of time and will have to wholesale it, either to a local BHPH or at an auction house. And they know they can probably get $6K for it wholesale, so that’s what they’re offering you. They’re mitigating their risk, because they don’t want to pay you, say, $7K or $8K, only to end up losing money on it. They really don’t want it at all, but if it’s what it takes to get you into a new car, they’ll take it and hope to break even.

        That’s why if you’re on the selling end of a well-kept ten-year-old car, it’s better to private-party it. Clean it out, fix the little things, and you’ll probably get way more for it from a private buyer than a dealership. To a private buyer, the fact that something is a low-mileage Honda in good condition actually is *worth* a premium, because they see it as reliable transportation and not an opportunity for (or loss of) profit.

        It’s also why if you’re on the buying end of a ten-year-old car, you should check out the dealers. Go to the back of the lot and see what the’y’ve taken in on trade. If your van’s previous owners had sold it or traded it into a dealership, that dealership might have been willing to sell it to you for $7K, especially if you had caught it before they put it through the reconditioning process and they could have essentially sold it as-is. Particularly savvy dealerships have started to learn how to market these cars on Craigslist, Facebook, and other non-traditional venues, and those tend to be franchise dealers of mainstream brands. But if someone trades in that 2007 Honda Odyssey at the Mercedes-Benz dealership? Yeah, they’ll probably make you pay comparatively little to take it off of their hands.

        • 0 avatar
          Peter Voyd

          It’s also why if you’re on the buying end of a ten-year-old car…

          There are some fundamental economic reasons why the seller of a “good” used car will have trouble getting its full market value on a sale – the Wiki article on the seminal “Market for Lemons” article has a pretty good explanation.

      • 0 avatar

        I’d also like to understand the “obtained illegally” part. Are car thieves looking up the lienholder info for a car they just jacked, or are the scammers purchasing and financing a car with a stolen identity? Or something else?

      • 0 avatar

        In their defense, they are only trying to operate within the system that we created. In most cases when someone walks off the lot they aren’t coming back. Consequently if they want to do a deal, they want to do it “right here and now”. That goes for selling or buying.

        Look at it another way: if I’m a legitimate owner looking to sell a car and the dealer says “I’ll give you $15k for it but we’ll have to wait a week for everything to clear before you get paid” (while the dealer is holding the car the whole time) then I’m going to go to the dealer across the street and see if he’s willing to pay me today. It shouldn’t be that way, and the dealers should be more cautious, but they won’t be because we know that somebody, somewhere is willing to deal today.

        In reality this should fall squarely on the bank, as they are the one providing inaccurate information to the dealership due to their faulty payoff tracking systems.

  • avatar

    I can only assume the thieves fraudulently take possession of the vehicle, and also have knowledge of the loan on the vehicle. Next, they somehow impersonate the real owner and “sell” the vehicle to a dealer. Hard to have much sympathy for the lender or dealer – most financial transactions are based on cleared / verified payments. The system is set up for fraud.

  • avatar

    Stealing from the stealership

  • avatar

    yes the purchasing dealership is being greedy but that greed has been ‘allowed’ by a system that has been incredibly ripe for abuse for quite some time. the infrastructure for a new scam has existed for years it just needed someone who could put several details into operation.

    what is key here? how the seller acquires 1) the physical vehicle, 2) the vehicles’ payment information, 3) access to the phone pay system, and 4) knowledge that the phone pay system can be inaccurate for a period of days.

    acquiring a car isn’t difficult and if you purchase it legitimately it will come with payment info. knowing how to access and manipulate the phone pay system requires some inside savy. how is that call verified? i don’t think i could call in and provide the info to a person or a recording accurately without having done it before.

    secondly, how would i acquire a vehicle initially so that once i sell it to the dealer they do not know who to come back to once they figure out the scam? to me that means that vehicles are being sold to people who present fraudulent information. it clearly happens i just don’t know how one would purchase a high end vehicle with fraudulent info?

    if you have a vehicle obtained with fraudulent information why not just sell it? why go through the rest of the scam?

    • 0 avatar

      “yes the purchasing dealership is being greedy but that greed has been ‘allowed’ by a system that has been incredibly ripe for abuse for quite some time.”

      You mean, a system molded over years by car dealer lobbying money, a system molded to help them do what they want to do more easily/cheaply?

      That system. And also a system that was never inspected by professionals with an eye toward the fraud we hear of today–because such inspections cost money, don’t you know, *and* might reveal problems that will cost further money to solve.

      No no no, it’s far easier and cheaper–in the short run–for the car dealers and their financial partners to stick their heads in the sand and keep doing what they do, and ignore any potential problems until and unless they become real problems.

      An ounce of prevention would have cost them an ounce! That wasn’t going to happen.

      It’s only the greedy that can get conned. I have no sympathy whatsoever for the “victims” in these scams, because they themselves were attempting to scam the “seller”.

      We all know, car dealers have the attitude of “I do this many times a day every day, you do it once every few years, I’m way better than you at all of this”. That attitude made it VERY easy for the scammers to play those attitude-filled car lot owners.

  • avatar
    qwerty shrdlu

    So we’re left with two questions:

    1 How to get a loan for a high-dollar car that can’t be traced back, and

    2 Why the payout is worth the risk of going to another dealer instead of just shipping the car to Russia or Nigeria.

    There is the possibility that someone is trying to cash-in quick before he skips the country and fraud charges would be the least of his worries.

  • avatar

    SO basically dealers fall for the “I am in France and want to sell my car for $10K, and it will cost $5K to ship. So I’ll send you a $20K money order and you send me back the $5K difference” scam.


    Something so very poetic about charlatans getting scammed by other charlatans.

    I generally have zero sympathy for anyone who falls for this stuff. But when a car dealership falls for it? BWA HA HA HA HA HA HA HA!!

    God does have a sense of humor after all.

  • avatar
    el scotto

    1st of all; thanks to jalop 1991 for actually explaining the scam to us. 2ndly, car dealers get scammed? I’m sure no one is crying. Lastly, this horrid, unintelligible cut and paste needs to go in TTAC’s “Hall of Shame”.

  • avatar

    Investigators should probably hunt down the crooks through video footage, fingerprints, etc. Closing the the hole in the system will solve the problem for such dealerships who conform to the patch, but others will continue to be swindled. Furthermore, the crooks who aren’t caught will just move on to the next fraud such as key swapping, check-washing, ID fraud, etc. Scammers will continue to scam until they are caught. It’s kind of like constantly sweeping dirt from one end of the room to the other when what you really need is a dust pan.

  • avatar
    Kyree S. Williams

    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.

    • 0 avatar

      You might want to consider hanging out with a better class of acquaintances.

      • 0 avatar
        Kyree S. Williams

        That’s the thing about acquaintances. You don’t always get to pick them out. That’s why they’re acquaintances, and not friends.

        Also, I don’t necessarily judge this person for hustling this way—it ultimately allowed him to save his home—and he confessed it to me in a moment of desperation and the need for a listening ear; there was no pride or glee in it. I was just fascinated that it took three or four rounds of this for the credit card company to finally take notice and do something about it. Doofuses.

  • avatar

    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.

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