The Expert Podcast

So, if you're an automotive dealership, new or used, how can you prevent being defrauded by customers improperly purchasing vehicles? A lot of times, you'll run into what's called synthetic identities, where somebody will come in with a fraudulent driver's license or somebody else's driver's license and purchase a vehicle in somebody else's name, where the credit is really not authentic or even the money is not authentic. Now, you're out the money for that vehicle, because even if you finance the vehicle, you have a little bit more protection. But most lenders have recourse for first payment default, so if you're a dealership and the first payment's not made, you may be on the hook for that vehicle.

On the other hand, if you take a cashier's check or certified check, sometimes that check could be false. A lot of dealers prefer to do financing because it gives you some degree of safety, or to have a wire transfer on cash deals. One of the things you may want to start doing is, instead of just scanning the driver's license or taking a copy, you might want to start doing some verification of the identity. There are services where you can find out the actual contact information for the person who is being represented to be the case—get their actual cell phone, actual email, actual home address—and contact them separately to make sure it's really that person.

Many times, you can use social media to verify the identity of a potential buyer. But this day and age, with vehicles being forty, fifty, sixty thousand dollars and up, one vehicle being sold to an improper buyer can put you out. Even if you make four or five thousand dollars a car, it may take you ten cars to make up that lost revenue. While you may have insurance coverage for fraudulent claims, sometimes there are big deductibles, and it could affect your rates. So, you want to start verifying these transactions because whatever dollar amount that vehicle is, that's the risk of the transaction not being authentic.

Synthetic identities is one fraudulent application for credit, or another where incomes are not correct. Somebody, you know, fakes pay stubs, creates fake employers, where somebody answers the phone and verifies employment. Sometimes there are credit repair schemes that will improve somebody's credit to where, if you spot deliver the car or even get a conditional approval, if the bank finds out it was a fraudulent identity, they can recourse the loan and put you back on the hook for trying to find that car.

A lot of times, these people are exporting them. They know they're not going to get a title, so they just either part them out or export the vehicle—that's their exit strategy for the profit. Another strategy you might put into place is to stay in contact with other dealers in your area. Even if they're competitors, you may want to form a loose collaboration of dealers. Usually, these fraudsters work in chains, where they'll go to dealerships in an area, sometimes the same brand, because they found the buyer for a certain brand of vehicle or a geographic area.

You may want to just put a hot list up of, "Be aware of this customer now." Make sure you get good legal advice; you don't want to disparage somebody if they're an actual legitimate buyer. But sometimes, these are discovered by, "Hey, I called my buddy over at the Ford Store. I used to work with him, and he told me about this guy." Don't rely on getting lucky that you happen to know somebody. Maybe put together a loose collaboration of colleagues in your area that can identify some of these fraudsters that are trying to get away with it. If you catch somebody and filter them out from buying a car, maybe you can notify some of your colleagues at other stores.

Getting back to the payment method: Most dealerships don't take cashier's checks anymore because they know that they could be forged or they could be fraudulent. In some cases, it's an actual check, but if the source of funds is revoked, the check becomes void. There have been cases where somebody has fraudulently wire transferred money to their account from somebody else's account, got a cashier's check, and then the first party who was defrauded from the money discovered their account was drained. They put in a claim that the money was reversed, and that cashier's check was made void.

It was a case where an older gentleman wrote a check to a landscape company for a hundred bucks to have his yard cleaned. Someone got a hold of that check, got his routing number and account number, and used that information to wire transfer thirty-five thousand dollars from his account into another account. Once the money was there, they bought a cashier's check for thirty thousand dollars and used that check to go buy a car. In the meantime, this victim, this older gentleman, discovered that his account was drained of thirty-five thousand and put in a claim with his bank. The bank realized it was forged, reversed that payment, and even though the cashier's check was already written, they voided it.

So, here's a dealership getting an authentic check. You can even call up the bank and confirm it's a valid check, but the next day it becomes revoked. A cashier's check isn't 100% guaranteed. Even wire transfers sometimes have some risk to it. So, a lot of times, financing with verification of the identity is a good way to go. And hate to say it, but sometimes now, performing due diligence on buyers may be a required or best practice step in doing an automobile transaction in this era of fraud. There's a lot more fraud, even in the last 12 months; we're seeing more of this happening with our dealership clients.

So, if you have questions about how to prevent fraud, you may want to look at some of the suggestions on our website. You may want to book a consultation with an investigator to go through some of the details in your particular dealership to see how fraud can be prevented in dealership automotive transactions.