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Taking Advantage of Our Trust in Technology, and People
Not so long ago a customer came in to sell us a nicely-optioned Cadillac CTS. We’ll call him Joe. We negotiated a deal and settled on $40,000. Our DealerTrack software showed a payoff of $15,946. He seemed very happy, and so was I. I knew that this model car, with all the extras, would eventually become a very profitable piece of business.
I made the payoff request through our title management system (DealerTrack) in the amount of $15,946. It went through our system, everything was updated, and we cut a check to Joe in the amount of $24,054.
I didn’t know it yet, but things were crooked.
It turns out “Joe” was a criminal who fake-paid down the loan the night before coming to the dealership. He made a shadow payment through a fraudulent checking account number. Thanks to financial technology and software that credits the account first and asks questions second, the payment never cleared! We were notified by the lender (ABC Financial institution) that the payoff amount we were given through the DealerTrack software system never cleared through the financial institution that it was drawn on. So, instead of $15,946, the payoff was the $15,946 plus the $24,054 which totals $40,000.
Meanwhile, “Joe” had already cashed the equity check in the amount of $24,129 and was nowhere to be found. Because the payoff system credits the customer prior to clearing the bank payment it was drawn on, a crooked consumer can get away with fraudulently obtained equity. The system must change!
The lender and I were left looking at each other sideways, trying to figure out who cheated who. So, the lender and I are going to court to find out who owes who, with a lot of legal representation as well as financial losses by both parties. The upshot is that the lender and I lose, and the criminal gets away without any punishment, criminally or financially. The system must change!
Real-World Fraud Games
At Autobuy, we solved the problem by putting systematic steps in place to guard against this sort of payoff check fraud – and it hasn’t happened since. But dealers need to know about this nasty bit of crime so that they can protect themselves; it combines check kiting with fraud, and results in significant cash loss to dealerships that acquire used vehicle inventory.
Make no mistake: this is an active scam that can happen to you. It’s a sophisticated theft that’s not perpetrated by your average seller; it’s driven by professional criminal enterprises that have the finances, resources and people to make it work flawlessly. That’s key to remember: This sort of fraud ONLY works if the timing is right and there’s a technology/timing loophole to exploit.
You can protect your dealership by putting these steps in place:
The automotive world is built to meet immediate customer satisfaction, but sometimes technology creates accidental loopholes that criminals can use to exploit the system. It happens when high-tech is applied to a low-tech process. If everything were digital, confirmation could be instant, but that too opens opportunities for hacking and an entirely different type of fraud.
Thanks to our approach, it hasn’t happened at AutoBuy for some time. But it’s out there, and unfortunately, this particular payoff fraud is a perfect example of how bad guys can game a legitimate business. We can defeat them, however, by petitioning to have the payoff protocol changed and by revising our process internally. Good technology, along with careful human review, can solve the problem, but only if lenders and dealers work together.