The scheme is simple: you, under a presumed identity, or preferably another person with good credit, takes out multiple car loans to buy multiple cars. You then sell the cars and pocket the money while leaving your fake identity or real human you tricked into taking out these loans absolutely ruined credit-wise. You will have successfully committed bust-out fraud, or “ghost funding” and now get to enjoy the massive profits as long as you don’t get caught.
According to Bloomberg Businessweek, this scheme is possible thanks to a massive loophole that’s aided criminals in raking in as much as $250 million in just the last year. In a world where you can get an instant credit offer after applying (with good credit) on your phone, the one thing that hasn’t caught up is how banks report loans to other institutions. The system is relatively slow, still taking about 30 days in this digital-fueled age to report any inquiries or loans to each other. It allows a grifter who might have good credit and a decent income to apply for multiple car loans in a short amount of time, signing them, and driving off with multiple new vehicles without anyone catching on.
The infinite money glitch
FICO calls it an “infinite money glitch” as fraudsters max out credit limits and take out as many loans as possible in a short stint. The real drop arrives when institutions ask for the first car payment, which depending on the deal and or the grace period the loan provider allows for late payments, could be a couple months later.
Bloomberg shared the story of Omar Guardia Jr., who with an excellent credit score and relatively good income took out more than $700,000 in loans from multiple lending institutions for at least 14 vehicles in that time frame. According to the criminal case, Guardia went a step further and reported some of the purchased cars as stolen 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 newer Corvette Stingray, Toyota Highlander, and Mercedes-Benz S560. It helped that these were not all head-turning cars. But with her “claimed” $180,000 per month income she was able to purchase a decent selection of cars and motorcycles.
In the waitress’ case, she was able to “afford” the opportunity by allegedly misrepresenting her income and position. The sweet spot between buyer and multiple approved loans can come down to an error or false documentation that can make someone look like an honest lender to the banks. And experts say artificial intelligence is making some of that even easier to make believable.
The loophole won’t be infinite forever
The biggest issue keeping banks from closing the door on the loophole is simply getting them to work faster or more cooperatively. Mostly it’s to make them work a lot faster in the digital age instead of this carrier pigeon-like system that takes up to 30 days to report all of one’s credit inquiries and loan awards. If you can approve me for a $25,000 consolidation loan in 45 seconds to a handful of minutes, it should show up (even if pending) like my purchases on a credit report, instantly. Point Predictive, a firm that assesses credit risks for dealerships, is currently testing a program as well with banks that have agreed to immediately share loan information. But strict privacy regulations around credit reporting and customer data could hinder that system’s usefulness.
It’s wild that in an age where you can get information for anyone and anything off the internet, that it’s still this easy to pull a fast one on our banking institutions. And it has gained ground. Point Predictive revealed the rate of these schemes occurring have gone up 83 percent in the last five years, with auto loan fraud rising 13 percent in the last year, which accounted for 1.4 percent of all car debt. Those are not little numbers. Nor is the $250 million lost last year. You’d think with those numbers, everyone would move faster to close the gap.
