A three-year investigation has ended with the indictment of 18 people who allegedly defrauded 18 financial institutions to the tune of $1.9 million. At the heart of the two fraud schemes: 47 loans for high-end vehicles.
Here’s how the alleged fraud went down, according to New York City Police Department and the Queens County District Attorney’s Office, which conducted the joint investigation:
Twelve of the defendants are charged with conspiring with one another to purchase on credit various high-end vehicles, such as Maseratis, BMWs, Porsches, Lexus, Cadillac Escalades and Mercedes-Benzes between July 1, 2008, and March 30, 2010. In carrying out their scheme, the defendants are alleged to have used “straw borrowers” with good credit scores to take out $1.9 million in loans in exchange for kickbacks and other incentives. Once the vehicles were turned over to various members of the criminal enterprise, the vehicles were then allegedly either sold or rented out on the black market to individuals engaged in criminal activity or the vehicles’ titles were “washed” out of state and sold to dealers or at auction.
In a variation on the first scheme, nine other defendants are charged with conspiring with one another to commit loan fraud by recruiting straw borrowers to take out bank loans – allegedly to purchase used vehicles or for some other purpose, such as performing home improvements. It is alleged that, in actuality, no vehicles were purchased and no home repairs were made. As a result, the defendants are accused of obtaining more than $180,000 in fraudulent loans funds.
Essentially, straw borrowers were promised $2,000 plus improved credit scores. Instead, they “wound up with ruined credit, multiple banks suing them for money, and suspended driver’s licenses for unpaid parking tickets on vehicles they allegedly ‘own,’” said Queens D.A. Richard Brown.
Of those charged, 16 were arraigned earlier this week; the remaining two are still being sought. The next court date is Dec. 14.
You can reduce or eliminate losses of this kind with a simple tweak to your underwriting policy. Collateral can be classified into two categories: vehicles purchased for transportation or for fun or luxury (think Buick Lacrosse vs. a Porsche Boxster or Audi A8). Statistics show that transportation purchases perform better when consumers hit hard times. Credit policy should require stricter advance for vehicles purchased for fun or luxury – regardless of score. One of the ignored Cs of the 5 Cs of credit is Character. What does it say about the character of an applicant who wants to finance 90% or 100% of a $65K or higher-priced vehicle? It says they are fine with risk as long as it is someone else’s money. Smart credit policy would denote a max advance of two-thirds of the vehicle’s price on any unit with a selling price over $65k. Only exception would be for a large depositor. Indirect channel with no DDA or deposit relationship? – a sucker bet on that segment of the portfolio. Your job is to finance rides – don’t be taken on one. Tacticalautotraining.com has 28 years worth of tricks like this to curb excessive credit losses. Check out their website. Wait…it’s my website!
Chas is right on!
This was not an underwriting issue. All the drivers used their own good credit to qualify. They were all solid citizens. It was their credit history. Everything about the deals checks out because there’s no fraud involved at the time of application processing. After they took delivery they turned the vehicles over to a third party for cash ($2,000. to $4,000). That’s when the fraud occured. (Our standard procedure is to verify all our lessee’s ID, employement, and address through public sources of information before we deliver a vehicle). The perps, (I love cop shows), passed the cars on to a prostitute, a pimp, a business owner in Atlanta who gave it to her daughter, and two guys in New Jersey that then resold those two cars to crooks. The bad guys had also talked one of these solid citizens into getting a mortgage in their name and turning the house over to them for $10,000. As far as I know, none of the bad guys were ever arrested.
Correct David. You hit it right on the head. This type of fraud is nearly undetectable. Chas is not quite “right on”. The credit applicants willingly provide their own personal data in exchange for payment. Our applicants believed they were entering in a business deal that would provide them a better return than the stock market and all they had to do was use their credit credentials to provide a vehicle that would be leased out to other people. They believed they did nothing wrong. These folks had incredibly high credit scores, comparable credit and verifiable high paying wage earning jobs (usually young computer programmers). The applicants were coached on how to handle the loan officers. Our applicants obtained cash up front ($2,000) and then a scim off the payment ($500) every month. All the applications 15 per borrower) were submitted at the same time so the lenders could not see the multiple inquiries.