Auto Fraud: The Top Threats to Both Buyers and Sellers

Six of the Worst Threats, Plus Tips for Avoiding Auto Fraud

Thanks to the internet, shopping for a new or used car is easier than ever. Unfortunately, the internet also presents new opportunities for scam artists to locate unwitting victims, and the auto market is one of the fields in which that threat is most pronounced.

According to the Consumer Federation of America, complaints about auto-related scams were the most frequent of all cases received by consumer protection agencies in 2015. There are countless different scams intended to target both buyers and sellers, with new techniques popping up constantly. A few long-running scams and practices, however, consistently top the list of threats for which consumers need to watch out.

1. Overpayment Scam

With this dragnet scam technique, a seller lists a car for sale online, then receives an enthusiastic reply from a potential buyer offering to send a cashier’s check for significantly more than the asking price. The “buyer” explains that the extra funds are to cover international shipping, which the seller should wire over to the shipper after depositing the check.

After wiring the money, the victim realizes that the check was a fake, and while they may still have the car, they have been cheated out of the several thousand dollars wired to a nonexistent shipping company.

Consumers should not act as a liaison between someone providing fund and another party hoping to receive them. If a request is made, the car seller should simply demand the buyer make his or her own arrangements for the vehicle’s transport.

2. Escrow Scam

In these cases, there is a legitimate consumer who is taken advantage of by a fraudster hoping to “sell” a car.

The fraudster convinces the shopper to transfer payment via a third-party escrow service. The buyer doesn’t realize that the escrow service is a fake, and as soon as the funds transfer, the fraudster breaks contact, leaving the victim out thousands of dollars.

Consumers should always be highly suspicious of anyone requesting online transfer of funds. Never, under any circumstances, should consumers transfer funds using anything other than a thoroughly-vetted, reputable, and recognizable service provider.

3. Title Washing

Autos which are wrecked, stolen, or otherwise damaged are typically referred to as salvage vehicles. Because salvage vehicles have much lower resale values than cars without such a history, sellers will sometimes engage in a practice called “title washing” to remove that salvage status from the car’s title.

Before purchasing a used car, always be sure to request a vehicle history report. Many reputable dealers will offer reports from a third-party service like CarFax, though consumers can also request a free VIN check from the National Insurance Crime Bureau.

4. Negative Equity Scams

While this scam isn’t technically illegal, it is a very commonly-practiced method of pulling the wool over consumers’ eyes.

When car dealers offer to pay off your trade, even if you owe more than a car is worth (a situation called negative equity), what they’re doing is working that negative equity into the terms of your new loan. It’s effectively pushing your debt down the road, allowing it to continue growing without your knowledge for years until you’re ready for your next trade-in.

Auto sales are a buyer’s market, and dealers are often enticed to find unique ways to move product. Remember the old saying: if it seems too good to be true, it probably is.

5. Disappearing Trade-In

Another slight-of-hand trick is the “disappearing trade-in.” In these cases, a dealer offers trade-in credit toward a purchase, regardless of the trade’s condition. What the dealer doesn’t tell you is that the credit you receive would generally have been offered even if you walked in with no trade.

Again, when it comes to buying a car, there are plenty of options to choose from. Consumers shouldn’t feel pressured to accept a deal on the spot without doing research on other available opportunities.

6. Fake Car Dealers

It’s not hard to setup a fake website; fraudsters have done it for years in many industries, and auto sales are no exception.

With this scam, the fraudster sets up a fake website with prices that appear to be incredibly low. Then, when out-of-state buyers inquire about the vehicles, the fraudster claims that they can only accept money by wire transfer, but that they are happy to ship the vehicles anywhere in the country. After the buyer wires the funds, the fraudster simply cuts contact and vanishes, leaving the consumer out the entire total of the amount transferred.

Ideally, buyers should avoid remote sales altogether when it comes to cars, trucks, and other expensive vehicles. If the buyer is determined to conduct a transaction remotely though, he or she should exercise extreme caution and use their best judgement when buying any vehicle sight unseen.

Top Five Tips for Avoiding Auto-Related Scams

If you’re browsing for a new car, or are a consumer hoping to sell or trade-in your current vehicle, be aware of the above commonly-practiced scams. In addition, remember to watch for these key behaviors, as they may place you at risk.

  1. Never wire money or use bank transfers. Only pay using legitimate, traceable means.
  2. Try to avoid long-distance sales, and don’t deal with anyone refusing to meet face-to-face.
  3. Have a professional inspect the vehicle before finalizing a purchase, and conduct a VIN check.
  4. Never transfer a car or title before a check is cleared and verified and you receive the funds.
  5. Be skeptical of anyone who seems rushed to complete a transaction as quickly as possible.

What About Alternate Payment Options?

Some consumers prefer to go with other payment options rather, than providing cash up-front or securing financing.

One such example is to place at least part of an auto purchase on a credit card. This may not seem like an ideal choice due to the higher interest rates associated with credit cards, but when it comes to fraud liability, credit cards are much safer than wire transfers.

If you choose to pay with a credit card and problems arise, let eConsumer Services® liaise with the auto seller on your behalf. Use the claim form to the right and our trained professionals will make arrangements for a refund.

You are Your Best Weapon Against Fraud

The internet empowered consumers to take many matters into their own hands. That means, ultimately, the key to protecting yourself against fraud is your own best judgement.

Whether you’re buying or selling a vehicle online, the operative point is to think critically.