The Expert Podcast

…Today we're going to talk about two types of auto dealership fraud. In one example we're going to look at how dealerships are defrauded themselves and how they lose millions of dollars from fraudulent transactions And we're also gonna look at how dealerships defraud the marketplace. First story is an very good example of how. Small used car dealerships can use an internal financing function that they have to collect millions of dollars They're not entitled to. And this article has to do with the dealership in Tennessee called auto masters It's all alleged right now innocent to improve and guilty obviously. But basically what happens is when a small car dealership…Finances cars buy here pay here When they have ads that say look we finance anybody Here's how it works. The customer goes to the dealership. And let's say you buy a $10,000 car. They put down $2,000. And they finance eight. And that dealership is the original lender of that loan. So the customer pays the dealership, the car payments It's not a bank it's not a finance company It's not, you know bank of America or chase. it's actually paid to the dealership because of that the dealership is allowed to make their own credit decisions. On financing. Which sometimes allows for less qualified buyers to get credit. So the dealership will. Do the loan they get their payments And usually it's a weekly payment system where the customer comes in every week. Usually when they get their paycheck and they pay their weekly payments on a monthly payment it's a weekly payment. So instead of paying $400 a month you pay $100. On a hundred dollars a week. So the deal…lent us money out but at some point you know, They don't have millions of dollars to have out finance on the street So they take. Maybe once a month, the package of loans that they have that $8,000 loan to this person, 10,000 I'll loan to somebody else they package them up and they have a line of credit. From what's called a backup lender…And they tell that backup lender look we have this package of loans. It's $152,000. here's all the loans Here's the contracts. And I want you to lend us money based on these loans…And. signed some. authorization affidavit saying we really have these loans that people are making payments. And we want to use that as collateral to get a loan from you so we can go buy more cars, right At some point if you find that all your cars, you don't get cash for that $10,000 car you only have $2,000. So you can't go buy another $10,000 car because the customer still owes you eight. So you can get this line of credit. You get the money from the bank and then you go buy more cars. Well there's some requirements First of all you have to actually have that loan out on the street Second of all it has to be performing where you have to represent to the lender that the person's actually making payments. Some of these lenders I require that the dealer…Get two or three payments first So it's not a first payment default. Before they can get money. Refinance from this backup lender. Well what this dealer did. Was, they went to the backup lender and said look we have all these loans out on the street and we want to get financing for it. And they actually collected almost $30 million from this backup lender without having proper loans in the street, they may have been. Made up from scratch They may have been non-performing they may have been, delinquent. For whatever reason they weren't real loans that were qualified to get them financing…So how does this affect consumers Well, what happens is for many of these loans, the titles are secured by the backup lender or maybe they're not even…acquired at all from the trade in customer. So if you are a buy here pay here dealership or a small dealership that does your own in-house financing…And you don't pay off your lender. The customer might be. In jeopardy. Of getting their Title…So. there's a lot of dominoes that could fall for a dealer that doesn't do the paperwork the right way. So small used car dealers that do their own financing. Have these financial structures behind them. That are usually invisible to the public. But may create consequences both for the lender because now they're out their money And for the retail public that may have title problems. And our next video we'll talk about how dealers can prevent fraud against them. By people. Using basically fake IDs. To buy vehicles.