The scheme is simple: You, under an assumed identity, or preferably another one with good credit, take out multiple car loans to buy multiple cars. You then sell the cars and pocket the money, while leaving your fake identity or the real person you have defrauded into taking these loans completely ruined credit-wise. You may have successfully busted fraud, or “ghost funding,” and can now enjoy massive profits until you got caught.
According to Bloomberg BusinessweekThe scheme was made possible by a major loophole that allowed criminals to obtain more than $250 million in the past year. In a world where you can get instant credit offers after applying on your phone (with good credit), one thing that hasn’t caught on is how banks report loans to other institutions. The system is relatively slow, yet it still takes around 30 days to report any inquiry or loan to each other in this digital-fuelled age. This allows a grifter who may have good credit and a good income to apply for multiple car loans in a short period of time, sign them, and walk away with multiple new vehicles without anyone getting caught.
infinite money glitch
FICO calls it An “infinite money scam” as fraudsters max out credit limits and take out as many loans as possible in a short period of time. The real downfall comes when the institutions first ask for the car payment, which could be a few months later depending on the deal and the grace period given for late payment by the loan provider.
Bloomberg shared the story of Omar Guardia Jr., who with an excellent credit score and relatively good income borrowed more than $700,000 from multiple lending institutions for at least 14 vehicles in that time frame. According to the criminal case, the Guardia went a step further and reported as stolen some cars purchased in order to free up more credit to purchase more vehicles.
The story was more simple for a Miami waitress who built herself a nice car collection that included a new Corvette Stingray, Toyota Highlander and Mercedes-Benz S560. It helped that these weren’t all shock cars. But with her “claimed” $180,000 per month income she was able to buy a good selection of cars and motorcycles.
In the case of the waitress, she was reportedly able to “spend” the opportunity by misrepresenting her income and status. The sweet difference between the buyer and the many approved loans may come due to an error or incorrect documentation that can make a person look like an honest lender to the banks. And experts say artificial intelligence is making it even easier to trust some of them.
The flaw won’t last forever
The biggest issue preventing banks from closing loopholes is simply getting them to work faster or more collaboratively. Mostly this makes them to work much faster in the digital age rather than this carrier pigeon-like system which takes up to 30 days to report all of one’s credit inquiries and loan awards. If you can get me approved for a $25,000 consolidation loan in 45 seconds to a few minutes, it should immediately show up on the credit report as my purchase (even if pending). Point Predictive, a firm that assesses credit risks for dealerships, is currently testing a program with banks that have agreed to share loan information immediately. But strict privacy rules around credit reporting and customer data may hinder that system’s usefulness.
It’s strange that in an age where you can get information about anyone and anything from the Internet, it is still so easy to make quick work of our banking institutions. And it has gained ground. Point Predictive revealed that the rate of these schemes has increased by 83 percent over the past five years, with auto loan fraud increasing by 13 percent in the past year, accounting for 1.4 percent of all car loans. This is not a small number. Nor does last year’s $250 million loss. You would think that with those numbers, everyone would move quickly to close the gap.
