How dealerships can fall prey to bank fraud
Van Over: "One of the biggest misconceptions in the industry is how lenders define a straw purchase."
Identity theft and bank fraud are a real minefield for dealerships, according to dealership consultant Gil Van Over.
In a recent presentation aimed at lenders, he showed how dealerships face threats from many directions.
Customers. Shady customers can falsify information, such as their income or even their identity, said Van Over, president of gvo3 & Associates in Crown Point, Ind.
Dealership employees. Employees can commit bank fraud many ways, Van Over said. For example, they can falsify customer data on credit applications; make straw purchases, or misidentify the car buyer; "power book," that is, list vehicle options the car doesn't have to boost the size of a loan; or commit forgery.
State and federal regulators, law enforcement and the dealership's own lenders. "Federally insured lenders are obliged to file a suspicious activity report with their regulator if they suspect they are the victim of bank fraud," Van Over said. "The regulator may turn it over to the FBI if a lender has filed enough suspicious activity reports." Not only that, he said, lenders aren't allowed to tell dealers when a suspicious activity report is filed.
Van Over led an informal discussion with lenders at the American Financial Services Association Vehicle Finance Conference in Orlando last month.
The discussion was geared to help lenders detect bank fraud at dealerships and decide when to file a suspicious activity report, but it also touched on some best practices for dealerships.
For instance, it may sound obvious, but dealerships shouldn't allow employees to have blank, signed documents, he said. Dealerships also should conduct periodic compliance audits and terminate offenders.
Straw purchases, in which the name on the contract is different from the actual buyer, are a continuing issue, Van Over said. When a parent buys a car for a son or daughter, legitimate confusion arises over who should sign the contract, he said.
"If the person driving the car is of age to sign a contract, his name should be on the contract. If the person driving the car could be claimed as a dependent on the buyer's tax return, it's probably not a straw purchase," Van Over said.
"Probably one of the biggest misconceptions in the industry is how lenders define a straw purchase," Van Over said. "You'll get a different opinion from the finance manager and from the sales manager because the sales manager is just trying to get a deal done."
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