Car Dealer Fluffing and Liar Loans Can Hurt You and Your Bank

This is an open letter to the Miami Valley motor vehicle dealership employee who sent us the anonymous letter that is attached. And an invitation to coffee and donuts.

Yes, we are aware that there are some dealers in Ohio who apparently have engaged in some deceptive, fraudulent sales practices in the last few years, taking advantage of both consumers and banks and putting everyone at risk while they line their pockets with money they otherwise wouldn't get.

Their lies make them big profits at the expense of everyone else. And the lies - well, that's why they are called Liar Loans. The New York Times interviewed us about it recently because we had so many car sales fraud cases involving this kind of fraud.

You say that after work a few drinks at a local pub they get to talking about what they do to customers and banks to make money. How they can get loans for people who can't qualify for a loan or don't have down payment money or are not making much money, and how the dealer employees "fix" a credit application by "giving them a raise on the bank application stating the customer makes more money than they really do" and that they create fake down payments to get loan approval, among other things.

It's called Bank Fraud and Conspiracy and some dealers are doing it.

And yes, you are right, faking a down payment can sometimes get the dealer people a higher kickback from the banks, because the banks think the buyer has more money invested in the vehicle so the buyer is less likely to default on the loan. And you say that some dealer employees tell the banks that the vehicle being sold has extra-cost optional equipment on it that doesn't really exist? Yes, I have seen and heard that one before too.

And you say that they alter the new vehicle invoice in order to get banks to make loans to people no matter what they owe? And they "laugh at how stupid the banks are," with all their money to loan out and the banks just "look the other way?" Yes, we have heard those stories too. Some banks won't bite the hand that feeds them and they don't want the public to know how easily they were ripped off. Those banks also don't want the bank examiners to know.

It alarms you? It should. This kind of stuff is called "fluffing" in the retail motor vehicle sales industry. The FBI calls it Bank Fraud and it's a federal crime. And when two or more people get together to do it, it's called Conspiracy. That's exactly what some employees at one car dealership found out the hard way. Check out this FBI press release.

"As managers and salesmen in a car dealership, these defendants falsified customer information used to make loans, defrauding the banks who trusted the dealership to present truthful information during the vehicle financing process, and harming customers by fraudulently inflating the value of the vehicles they purchased," said U.S. Attorney Joyce White Vance in a statement reported by industry magazine F&I Showroom. "This type of fraud is the auto-industry equivalent of the mortgage fraud that contributed to the financial meltdown, and could threaten the security of our financial markets.”

Rumor has it that the FBI (in Ohio and elsewhere) is looking far more closely at this kind of fraud than ever before. Meanwhile, people are getting hurt.

Fluffing a credit app hurts the consumer because it buries them in debt they can't really afford and locks them into a loan payment schedule that many of them are doomed to fail.

It hurts banks because they make loan decisions and take on financial risks based on fraudulent credit information given them by their partnering vehicle dealers. And, as the US Attorney in an Alabama case put it, that is how the financial collapse of 2009 was triggered when these Liar Loans ran wild in the mortgage industry.

And now Liar Loans have come to a car dealership near you. And some Rv dealers too.

In the long run, Liar Loans hurt everyone but the thieves at the dealership, who pocket the big money. And when caught, they often run, leaving a legitimate dealer with an office full of trouble. Of course, that assumes the owner of the dealership didn't know it was going on in the first place.

But then again, we've also heard that some dealers are run by the very persons who seem to be telling the dealer employees how to do these things. It has gotten so bad that we now have about four dozen consumer clients who are victims of this fluffing ripoff. And you can tell when "it flows downhill" when one person owns several dealership locations and multiple locations are accused of doing the same thing to different consumers. Sometimes fraud is not accidental. Sometimes fraud is organized.

An anonymous letter from you is nice, sure. But we really need witnesses who know the truth about what was done, how it was done, and who did it at your dealership. We'll meet with you "off the record" and just as anonymously, if it helps us get to more of the truth. Our door has been open before and is always open to learning the truth about the few crooked dealer employees who make it bad for everyone.

People are getting ripped off. Banks are getting ripped off.

If you know anything about car sales fraud, stop by our office for a cup of coffee and a chat sometime. If you aren't part of the solution, then you may become part of the problem.