1. Large-Scale and Mid-Scale Fleet Fraud (International Shipments)

Fraudsters target motor finance agreements by acquiring multiple vehicles, often for business or personal use. These vehicles are then shipped overseas, sometimes to Eastern Europe or Africa, where they’re sold or broken down for parts.

Example:
A fraudster acquires a fleet of cars under the guise of a legitimate business, then ships them to Malta. Once there, they’re resold or dismantled for parts, making it difficult to trace the original sale.

How to Avoid:
Ensure that vehicles financed for business purposes are properly verified and tracked. Conduct regular checks on high-volume transactions and be cautious of shipments to high-risk locations. Enhanced background checks on businesses can also help identify suspicious activity.

2. One-Off Car Finance Fraud (Exporting to Eastern Europe)

In this form of fraud, fraudsters acquire individual vehicles on finance and plan to ship them to other countries. They typically use fake IDs, fabricated documents, or misleading claims to secure financing without ever intending to repay.

Example:
A fraudster submits fake documents to finance a car and then exports it to Eastern Europe, never making the scheduled payments.

How to Avoid:
Implement robust verification processes, especially for international transactions. Using biometric verification and cross-checking IDs can reduce the likelihood of fake documents slipping through.

3. Ghost Dealership Fraud

A “ghost dealership” is a fake car dealership set up by fraudsters, complete with a fabricated website and fake credentials. These dealers often disappear with customers’ money after providing non-existent cars or services.

Example:
A fraudster creates a fake website, presents fake credentials, and convinces customers to finance vehicles that don’t exist. Once the money is collected, the dealership vanishes.

How to Avoid:
Ensure that dealerships are properly vetted and licensed. Use due diligence to verify their history and credentials, especially when conducting online transactions. Working with reputable platforms and reviewing customer feedback can also help identify fraudulent dealers.

4. Phoenixing

Phoenixing occurs when fraudsters close down a business, then reopen under a different name to avoid accountability for previous fraudulent activities.

Example:
A dealership goes out of business due to fraud, only to reopen under a new name, leaving customers with faulty vehicles and no recourse.

How to Avoid:
Check for any history of businesses operating under multiple names and ensure they are fully registered with proper authorities. Keep track of business addresses and ownership changes to detect potential phoenixing activities.

5. Bent Dealers

“Bent dealers” are unscrupulous businesses that manipulate motor finance agreements. They may falsify details about the cars they sell or submit fraudulent finance applications, leaving the lender with the financial loss.

Example:
A dealer inflates the value of a car or submits incorrect vehicle history details to secure finance. Once the loan is approved, the dealer disappears with the funds.

How to Avoid:
Implement strict controls for verifying vehicle information and the legitimacy of dealerships. Regularly audit dealerships for discrepancies or suspicious activities.

6. Lone Wolf Fraudsters

Lone wolf fraudsters attempt to secure a vehicle using fake ID or counterfeit documents, then disappear with the vehicle, often selling it on or breaking it up for parts.

Example:
An individual submits a false driver’s license to obtain financing and then sells the car to an unsuspecting third party.

How to Avoid:
Use advanced verification technology, such as facial recognition or fingerprint scanning, to ensure that the person applying for the loan matches the identity on the documents provided.

7. AI-Generated Deepfakes and Sophisticated Fraudsters:

AI-generated deepfakes allow fraudsters to create hyper-realistic fake documents, including driver’s licenses and passports, which can bypass biometric systems.

Example:
A fraudster uses an AI-generated fake driver’s license to apply for car finance, easily bypassing security checks that rely on document scans or biometrics.

How to Avoid:
Invest in deepfake detection technology that uses multiple data points (such as behavioural analysis, AI models, etc.) to detect inconsistencies in documents or images.

8. Asset Conversion and Disposal of Financed Vehicles

Once a customer secures finance for a vehicle, they may sell it to an unsuspecting third party without settling the finance agreement, making it difficult for the lender to recover the asset.

Example:
A customer sells their financed car to a third party without informing the lender, leaving the lender with no means of recovery.

How to Avoid:
Use GPS tracking or a similar service to monitor the vehicle. Keep detailed records of ownership and ensure that finance agreements include clauses for asset recovery if sold.

9. Impersonation and Identity Fraud

Impersonation fraud occurs when a fraudster uses real customer data but replaces the photo on the documents to pass as the legitimate individual.

Example:
A fraudster submits a stolen identity with a fake photo and passes biometric verification, acquiring a vehicle on finance. The Hertfordshire Police highlight such a case of Impersonation Fraud coupled with vehicle theft and resale here

How to Avoid:
Cross-reference personal details with multiple data sources, and use biometric verification systems to ensure the person picking up the vehicle is the same one that applied for the finance.

10. First-Party Fraud (False Financial Documentation)

First-party fraud involves submitting false documents like fake bank statements or payslips to secure financing for a vehicle.

Example:
A customer submits altered bank statements showing a higher income to qualify for car finance that they would otherwise not have been eligible for.

How to Avoid:
Verify all submitted documentation and cross-check information using reliable financial institutions. Use data-matching technology to identify inconsistencies.

11. Shell Companies and Corporate Fraud

Fraudsters set up shell companies to apply for car finance or pose as legitimate dealerships. These companies may only exist on paper, but they can be used to obtain vehicles through fraudulent means.

Example:
A fraudster uses a fake business registered on Companies House to apply for multiple vehicles under false pretenses.

How to Avoid:
Verify company details thoroughly, especially when the business is newly established. Use company registration databases and conduct background checks on the business owner.

12. Fronting: Financing for Others

Fronting is when someone takes out finance for a car but claims it’s for their own use, when in fact, the car is for someone else who doesn’t meet the eligibility requirements.

Example:
A person applies for finance on a car but registers it in someone else’s name who wouldn’t be eligible for the loan.

How to Avoid:
Make sure the person applying for finance is the actual intended owner of the car. Verify their address and check for any discrepancies in their personal information.

13. Internal Fraud: Employee Misconduct

Internal fraud occurs when an employee within a dealership or finance company manipulates documents or misappropriates funds to secure fraudulent finance agreements.

Example:
An employee submits false information on behalf of a customer or approves a fraudulent application for personal gain.

How to Avoid:
Implement internal audits, segregate duties, and create a system of checks and balances to prevent and detect fraudulent activity within the organization.