Point Predictive Releases Episode 2 of Podcast Series “To the Point”
Episode Two, Identity Theft and Vehicle Fraud Tactics with Sgt Darren Schlosser
In episode two of Point Predictive’s exclusive “To The Point” Podcast series, recorded at the 2023 Point Predictive Auto Lending Roundtable, Sargeant Darren Schlosser from the Houston Police Department discusses different aspects of vehicle fraud methods and identity fraud with our host for the series, Jeff Goldberg. Topics include:
- Vehicle Fraud Tactics: Gain insight into the different ways Sargeant Schlosser has seen fraudsters attempt to scam dealerships and lenders.
- Artificial Pay Down and Synthetic Identity Theft: Learn more about a tactic that Sargeant Schlosser calls “artificial pay down” and what he considers to be the largest fraud threat to lenders: synthetic identity.
- Sargeant Schlosser’s Motivations in Vehicle Fraud Prevention: Learn about how Sargeant Schlosser’s journey in fraud prevention got started, and what programs he has implemented in the fight against fraud.
You can listen to the full podcast episode or read the transcription of Episode 2 below.
Transcription
Intro:
This is “To The Point”, a Podcast from Point Predictive.
Jeff Goldberg, Host:
Hi, I’m Jeff Goldberg at the 2023 Auto Lending Fraud Roundtable presented by Point Predictive.
I’m joined by Sergeant Darren Schlosser with the Houston Police Department Auto Theft Division. Sergeant Schlosser, thanks so much for joining us today, what are some trends you are seeing when it comes to auto theft in 2023, that really worries you has your attention, both in Houston and nationwide.
Sgt Schlosser:
So obviously, we start off with our primary investigations are just strictly identity theft. That’s because the victim is reporting the crime against their credit. So, for vehicle fraud, that’s 95% of what we work. But what we’ve seen over the past probably month to two months is we’ve seen a rise or a resurgence of what I call an artificial pay down. So, what that situation is, because I worked so closely with the dealership industry, they’ll have a situation where somebody brings a car in typically to sell off the streets to the dealership. So… the person who’s selling the car is a real person with a real auto loan for that vehicle. But what they do just prior to taking the vehicle to the dealership, is they send a check to the finance company that artificially shows a much less, a much lower balance remaining on that account, they don’t typically try to pay it off, but they pay it down to a very significantly low level. So in the example of Sam’s $50,000 car, they will send a $40,000 check to the finance company. So now the balance shows to be $10,000.
The dealership does an electronic check of that lien to see how much is the payoff for that and it reflects $10,000. So they then work the deal with the person where they give them say $40,000 worth of a check for the equity they have in their vehicle. Well, the problem is, is shortly after that the balance now reflects the true $50,000 balance when the check bounces. And so now the dealership is made aware that the actual payoff on the car is $50,000. So now what they’ve done is they’ve given $40,000 to a criminal. And then $50,000 is still owed on the vehicle.
So that’s where they’re now basically hitting getting hit twice for that vehicle when they purchase it off the streets. Now, the amazing part is, is that since it is a real person that’s doing this crime, they seem to have zero regard for possible consequences of doing this type of fraud, where they’re doing a pay down on this with a fraudulent check, a bounced check. Now as law enforcement, what’s hard for us is the fact that this pay off, I mean, this fraudulent check that was used in order for us to make a criminal case about it, we have to prove there was never money in that account to begin with.
And so it’s much longer, it’s a much longer investigative process to actually come to it. And then the problem is this person who did it just wants the money. They don’t care about the consequences, and the consequences are going to be very minimal in the criminal justice system.
Jeff Goldberg:
And by the time this has all been found out, they’re long gone anyway.
Sgt Schlosser:
Well, it’s not necessarily (that) they’re long gone. It’s just that they’re, they have no concern about it, because they realize that in the court system, it’s a very lengthy process for anything to be done. And then when it is something when it does get brought to the criminal justice system, there’s a very low penalty range for it.
Jeff Goldberg:
Why is this in the last couple of months? It’s very interesting. You say you’re just seeing an uptick in this? Why now?
Sgt Schlosser:
I don’t know. And that’s, that’s what’s concerning and alarming. I’m wondering. So last year, we probably had four instances of that situation, four artificial pay downs last year, I’ve heard of about six in the past month or two months. Now, I don’t know what that is, a lot of times criminal trends are made when people start talking about the ease of being able to do this. So, in my theory is, is that people that have a vehicle that maybe they don’t want to pay for anymore, or they’re hard up for money and they can’t pay the vehicle anyway, it’s an easy way for them to make cash off of the sale of their vehicle. So when they’re going to unload this vehicle anyway, why not try to get $30-40,000 cash in the process of unloading this vehicle.
Jeff Goldberg:
So of course, if I’m listening to this, and I’m a dealer, I’m quite concerned that this could happen. So what should dealers do to prevent this?
Sgt Schlosser:
So my initial suggestion is for the dealership to contact the finance company before they finalize the deal. Put some sort of hold on that check for that vehicle. Don’t issue it at the moment that the person is driving off. So if somebody brings a car into the dealership, don’t immediately issue the check and let them walk away, they need to first verify with the finance company that there hasn’t been a recent large payoff on that account. That’s a huge red flag if it has been done in the last seven days. The second thing is put a hold on the check until you’re sure – don’t issue the check to the person until you’re sure that the finance has gone through and that the proper pay down is, has been done. So it’s just basically doing due diligence before you hand a check over to the person selling you a car.
Jeff Goldberg:
Sergeant Schlosser, when you look at this particular problem that you’re seeing an uptick in, and the myriad other problems that are out there, and the way in which criminals are leveraging technology, AI, there’s so many ways in which criminals can take advantage of the system. Is it overwhelming? And how can you attack all these issues when there’s so much happening at once?
Sgt Schlosser:
So there with every type of fraud, there’s several variations of it. So there’s not only you know, identity theft, but there’s multiple versions of ID theft, that there’s not only synthetic identity, there’s multiple versions of synthetic identity. And they’re constantly evolving and changing. So the schemes just keep growing and becoming more sophisticated. There’s just no way to keep up. The main thing we can do is to work between the dealership industry, the finance industry, and the law enforcement industry together to try to battle this. And that’s the only way we can, but we need to come up and evolve and try to create our own ways of battling this, that are trying to be a step ahead of the criminals, it’s just very hard to do.
Jeff Goldberg:
What are some of those ways?
Sgt Schlosser:
So having some sort of networking, where you’re sharing information, you’re sharing situations that are happening in each of your areas. So, for example, in Houston PD, we have what we call a dealer alert system. So when we have identified criminals, or we have somebody who’s actively using IDs to get vehicles, we send that information out to industry, number one to alert them of the problem. Number two, on many situations, they will respond to us saying, “Hey, we were also victimized by this”. So now we’re linking previously unknown cases together. And then three, it’s prevention. So that’s, that’s another big aspect of what we do. So, our hope is, is that as we send out these dealer alerts, and which has happened on numerous occasions, somebody will look at that and say, “Hey, wait a minute, that person that was on that dealer alert Sergeant Schlosser sent out, is actually in our dealership right now, trying to perpetrate a crime”. So in those situations, we love to catch them in the act. And we’re very successful at that.
Jeff Goldberg:
When you think about the future, what keeps you up at night?
Sgt Schlosser:
I would say the synthetic identity is probably the most underrated and least investigated aspect of fraud that’s out there right now. As I mentioned before, identity theft, you have a victim who actually reports a crime. Well, if somebody does a fully synthetic identity, creates any name, any date of birth, any driver’s license, any social and they start building a credit profile for that, at the point where they’re doing the height of their fraud. Who’s going to report to the credit industry, to the law enforcement, that it’s a fraud? The criminal is not going to because they’re out there trying to get as much as they can. So synthetic identity, I think, is probably the, one of the fastest growing, least investigated areas of fraud that are out there.
Jeff Goldberg:
My final question to you Sergeant Schlosser, you’ve been doing this for some time now. What is it that really drives you drives your passion, no pun intended, but really keeps you going. And what makes you so passionate about this work? And you know, finding these criminals finding these fraudsters and doing the best you can to put an end to this type of fraud.
Sgt Schlosser:
So when I first began my financial crimes investigation career was between 2011 and 2013 I was doing traditional financial crimes, so check forgeries, credit card reviews, different things like that. It was interesting investigations, but very low solvability. So as I got to auto theft, and there was a financial crimes unit that was there, but they were kind of focused on BMVs where credit cards were being used, and then some was being done with actual dealership reaction. I saw the problem. I saw solutions, and I saw where we can make a definite impact on what was going on. So when we, when I created this vehicle fraud initiative, as I called it, which is linking dealerships with finance companies and dealerships. I’m sorry: linking law enforcement with finance companies and dealerships. And then I do teaching and training of dealership employees and law enforcement on how to spot and identify fraud. What is fraud? How can we battle it? How can we work together?
And then we implemented a program of what we call a fraud in progress, where we are heavily involved with actively talking with dealerships with people who are inside the dealerships at that moment, and arranging for law enforcement to go in there and actually arrest the person on site. Those three things together have just seen astronomical success. And that’s what keeps them going. It’s seeing the success and the high value targets they’re going after, you know, an average car nowadays is somewhere $40 -$50,000 on the low end, and then you easily go up to the $75-$100,000 plus, so it’s not, you know, $1,000 or a few $100 at a local convenience store or Walmart. It is, you know, 50,000 plus dollars that’s been taken at one time.
Jeff Goldberg:
And the fight continues to stop those situations.
Sgt Schlosser:
That’s exactly right.
Jeff Goldberg:
Sergeant Darren Schlosser, thank you so much for joining us from the Houston Police Department from the 2023 Auto Lending Fraud Roundtable presented by Point Predictive.
