Revisiting the Boldest Dealer Fraud Scheme in Recent History

By Jay Anderson, VP of Product Delivery

Taking a trip back to just before the pandemic, there was a news story that stood out to me that was quickly lost in the shuffle of Coronavirus news. A home-grown fraud ring based in Georgia discovered that it was easier to make money getting lenders to fund fake loans than it was to actually sell cars.

What was the scheme?

Two associates developed a plan to separate auto lenders, primarily credit unions, from their cash without selling anything. They set up several fake companies posing as car dealerships under names such as “Premier Luxury Motors,” “Platinum Motors Auto Sales,” and “5-Star Motorsports.” Then they found individuals willing to take part in their scheme for some fast cash.

Their co-conspirators would apply for credit and supply any documentation requested by the financial institution including forged contract papers to obtain a loan. Once funded, the fraud ring would deposit the funds under the name of the fake dealership and split the cash among the parties. Eventually, the lenders and the FBI caught up to them, but not until they’d stolen a total of $1.7 million from lenders.

They were able to conduct the entire scheme without purchasing a single car nor signing any lease agreements. A simple site visit by each of these financial institutions before funding a loan would have saved them a small fortune. The most shocking fact is that they were able to keep their scheme running for 4 years before they were apprehended.

Who would be duped?

You might think that a scheme like this would only pass through safe guards set by new entrants into the auto finance world – organizations desperate for growth at any cost. The institutions that were victimized did have relatively lax dealer controls as credit unions often rely on membership requirements to protect them from schemes like this, but most credit unions have programs that allow a dealer-partner to sign up new members seeking to obtain financing.

These lenders generally had decades of auto lending experience and assets in the billions. Letting your guard down can be very costly.

What could have been done to prevent it?

I’ve already mentioned site visits as a simple answer. Best practices for new dealer sign-ups include:

  • Site visits
  • Inventory review (both to ensure it’s real and to make sure it fits your loan profile)
  • Business License review (and standing with the Secretary of State)
  • Online consumer reviews (especially compared to similar dealers in the area)

For those of you looking to be even more conservative especially with smaller independent dealers that carry more inherent risk, some additional checks you should consider are:

  • Financial Statements Review
  • Owner/Principal Background Check
  • Owner/Principal Credit Check
  • References (including a conversation with their floor plan provider)

Background checks on people are good, but what about on the dealer itself?

There are traditional tools in the market that probably help you identify dealers today such as Auto Count from Experian and similar products from TransUnion and Equifax. These products struggle to provide performance information on the loans originated from these dealers, through which could have prevented losses in this case had the financial institutions had greater visibility into the loan performance stemming from this specific “dealership” across all lenders.

Point Predictive’s proprietary data repository provides exactly that type of view and with the recent release of DealerExplorer™, you can perform additional due diligence on a dealer’s loan performance and application quality (specifically looking for fraudulent applications) onboarding them and funding loans. This can dramatically improve your ability to sign on profitable partners and avoid dealer fraud schemes even if they aren’t as bold as this one.