What straw buyer fraud could mean to your dealership and how to avoid it

Beware the straw buyer.

That is, a purchaser who looks like the real thing – but isn’t.

The buyer could be someone purchasing the vehicle for a consumer with disqualifying credit issues, or he/she could be “a criminal who is perpetrating a fraud scheme.”

Such as the Wisconsin man who authorities have charged with a dozen counts of money laundering that involved selling luxury cars overseas by defrauding local car dealers. Using dozens of straw buyers, the man allegedly secured $30 million in financing to buy the vehicles.

091818 IL What you need to know about fraud risk – and why you should care_V4“To a lender, a straw buyer might look like a real buyer,” wrote Frank McKenna, chief strategist at PointPredictive, a consulting firm specializing in fraud prevention. “[But] their whole purpose is to get a lender to give money to an organized group of crooks.”

As in the Wisconsin case, selling to a straw buyer or buyers can hit a dealer’s bottom line hard.

RELATED

What you need to know about fraud risk – and why you should care (Part 1)

Identity fraud can take ‘enormous toll’ on your dealership profits (Part 2)

How to change the odds in your favor against application fraud (Part 3)

“Lending to straw buyers/borrowers often leads to extremely high levels of default … In fact, most loans will default without a single payment,” wrote McKenna, who calculates that “at an average loss of $24,000 per fraud occurrence, your dealership is forced to sell 10 cars to make up for a single instance.”

Here’s what Santander Consumer USA’s Driving a New Model | A dealer guide to recognizing the warning signs of fraud, identifying suspicious buyers and taking action to reduce costs suggests to look for and to reduce straw buyer fraud risk at your dealership:

The Red Flags

  • Applicant is declined and then returns with a co-buyer
  • Co-buyer has a different last name and/or address
  • Applicant asks to take contract to co-buyer
  • Primary and co-buyer continue to change on the same vehicle application
  • Insurance policy lists multiple vehicles with different last names

And the Checklist

  • Both applicants present at time of contract signing
  • Don’t allow the contract to leave the dealer premises
  • Ask for references on both applicants, and contact the references
  • Ask who will be making payments while both applicants are present

“Santander Consumer USA (SC) is committed to working with dealers to raise awareness of fraud and elder-abuse risks in the retail auto space,” says Driving a New Model, which was created by SC’s fraud management group. “Watching for red flags is the most cost-effective way of preventing fraud and reducing expenses related to fraud, reputation, regulatory and financial risks.”

This series, Driving a New Model, is aimed at helping dealers spot the red flags for identity fraud, application misrepresentation, straw buyers and elder abuse, and includes actionable checklists.

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