It’s a common story – one that sadly can be found on a daily basis. Sometimes, it is a crime or consumer item to be found in a local newspapers. Sometimes, a person shares it with their online friends on their Facebook wall. More often however, the story may not be shared with anyone – as the person involved feels ashamed for having been taken for thousands of dollars – for being “stupid” or “foolish” in the Internet age – which has become the ultimate caveat emptor environment – and especially when it comes to cars.
As a case in point, an individual finds the car of his or her dreams – or today, the one they can afford – on an online site – eBay, Craigslist, Cars.com, Autotrader.com or a panoply of other specialty sites. They “win” the auction or agree with the seller on a price through emails and go to pick-up their new vehicle. They come armed with cash or a cashier’s check and meet the seller in an agreed-upon – always public – place, and yes, they drive away in their new vehicle. However, a day or two later, when they go to their local DMV (motor vehicle) office, they soon discover a horrible truth. The car or truck they just bought was listed as stolen, and that title they received from the seller was – literally – not worth the paper it was printed on. In an instant, they know that they’ve been scammed, and when they try to find the seller, that person is nowhere to be found – vanished in the wind like Keyser Söze.
Craigslist (Photo credit: Chika)
On the other side of the transaction, car sellers face great risks as well. A seller may watch their laptop screen or phone screen and see the price they are going to get for their vehicle go up and up on their eBay auction – maybe even far beyond what they could have expected according to the Kelley Blue Book. Was it because of the low mileage? Was it because of the color? Was it because of the description of the car they had taken hours to write before making the auction online? Was it because of the photos they had posted from multiple angles? Maybe – but the sad truth became clear just hours after the winner of the auction had driven several hundred miles with a friend to pick-up your vehicle. Yes, he had given you a cashier’s check, but when you went to your bank to deposit it, the branch manager was called over to tell you the terrible truth – it to was not worth the paper it was written on – a masterful forgery on an account that did not exist.
Common Scams Found in Online Auto Sales
The “Price Too Good to Be True” scam
In this scam, a prospective buyer sees an attractive-looking car (often a classic or exotic car) for a price well below market value. When the buyer contacts the seller, he or she is notified that the seller and the car is outside of the country and will arrange for shipment of the car upon receipt of payment, most often via wire transfer (such as Western Union) or bank-to-bank transfer (for very large payments). When the money is transferred and collected, the “seller” breaks contact and the buyer is out the money.
The overpayment scam
A legitimate seller posts a car for sale. He or she is then contacted by a prospective “buyer” (really a scammer) who offers to send a cashier’s check immediately plus additional funds to cover shipment of the car overseas. When the check arrives, the seller is instructed to deposit it and wire the overage to the “shipper.” When this is done and the wire transfer picked up, the “buyer” breaks contact and the seller is left on the hook to their bank for the fraudulent check and the missing funds.
Many consumers are rightfully wary of sending large amounts of money to someone they’ve never met. Scammers frequently recommend the use of fake “escrow” services that will hold funds involved in the transaction until both parties are satisfied that the transaction has been completed. In a typical scam, a legitimate buyer will be approached by a scammer selling a car (again, often an exotic or classic car priced, but usually priced well below market value). The scam seller will offer to ship the car and that there is no risk of fraud due to the “escrow” service (purportedly eBay, PayPal, or another service). Once the money is transferred, contact is broken (or sometimes additional funds are requested to cover “unforeseen” events). In any case, the legitimate buyer never receives a car and loses their money.
Source: National Consumers League (http://www.nclnet.org/personal-finance/64-fraud/399-avoiding-online-car-buying-scams)
A car is typically the second largest purchase an individual or family can make – and with the recent trends in home ownership, for more and more of us, it is our largest single purchase. However, today, while the Internet has transformed the car buying experience, enabling car buyers to have more information than ever on vehicle histories, maintenance, costs, etc., criminals have also made buying and selling cars online a proposition fraught with potential peril. For individual car buyers and sellers, as well as online auction and classified sites where autos are bought and sold, it is critical that buying and selling a car be made as secure as possible. Reputable third-party escrow services thus have a great role to play in making this happen.
The State of Online Auto Sales
According to the U.S. Department of Transportation’s (DOT) Research and Innovative Technology Administration (RITA), approximately 37 million used cars were sold in the U.S. in 2010 – the last full year for which statistics are available. With an average selling price approaching $9,000 for used cars and trucks, used car sales amounted to $324 billion in 2010 – exceeding the sales volume for the entire new car market ($311 billion). The DOT data on used car sales includes sales made not only by franchised and independent dealers, but also an increasingly growing category of “casual sales” – which includes all sales between individuals, including those made on eBay, AutoTrader, Craigslist and a growing list of auction and classified ad-type sites. Today, it is estimated that 11 percent of such casual auto sales are initiated online – either through auctions or ads, and according to industry analysts, used car and truck sales are expected to expand at a considerable rate in the next decade. However, again and again, the very real prospect of fraud is cited as the number one factor holding back the growth of such services, as well as the hesitancy of auto buyers and sellers to use online sites for their vehicle needs.
The FBI’s “Red Flags” for Consumers in Online Auto Sales
- Sellers who want to move the transaction from one platform to another (for example, from Craigslist to eBay Motors).
- Sellers who claim that a buyer protection program offered by a major Internet company covers an auto transaction conducted outside that company’s site.
- Sellers who push for speedy completion of the transaction and request payments via quick wire transfer payment systems.
- Sellers who refuse to meet in person, or refuse to allow the buyer to physically inspect the vehicle before the purchase.
- Transactions in which the seller and vehicle are in different locations. Criminals often claim to have been transferred for work reasons, deployed by the military, or moved because of a family circumstance, and could not take the vehicle with them.
- Vehicles advertised at well below their market value. Remember, if it looks too good to be true, it probably is.
Source: FBI (http://www.FBI.gov/news/pressrel/press-releases/hijackers-use-false-protection-claims-to-lure-online-shoppers)
How big is the “fraud factor”? This past August, the Federal Bureau of Investigation (FBI) issued a specific warning to consumers about the rampant level of criminal fraud in online auto sales.2 The Internet Crime Complaint Center (IC3), a partnership between the FBI and the National White Collar Crime Center (NW3C), received nearly 14,000 complaints from online car buyers who have been victimized – or at least targeted – by scammers. The FBI reports that the total dollar amount lost through such scams by prospective online auto buyers is “staggering” – totaling approximately $44.5 million.3 The losses from car sellers may be reasonably expected to be lesser. However, the actual losses are far exceeded by the lost confidence of online buyers in legitimate sellers and legitimate sales/auction sites, which only serves to dampen the market for online auto sales, lowering potential demand and buyer activity – and effectively lowering ultimate sales prices for individual units and aggregate sales results.
The Escrow Solution
With the veritable minefield that online car buyers and sellers must navigate, it would appear that this is an area that is ripe for reinvention. One suggested solution is the increased role that trusted, third-party escrow services could play in facilitating and securing automobile sales initiated and/or executed online. Yet, this is complicated by the fact that online escrow scams are indeed one of the most common methods scammers use to defraud Internet auto buyers (See Common Scams Found in Online Auto Sales). Thus, it is vitally important that car buyers and sellers trust the third-party escrow site they would use in the transaction (See The IC3 on Escrow Fraud).
Tips from the National Consumers League on How to Avoid Car-buying Scams
- NEVER wire money or use a bank-to-bank transfer in a transaction.
- ALWAYS try to deal locally when buying or selling an automobile or other high-value merchandise
- DO NOT sell or buy a car from someone who is unable or unwilling to meet you face to face.
- NEVER buy a car that you have not seen in real life and had inspected by a professional. A vehicle history report may also be a good idea, though scammers have been known to use fake vehicle identification numbers to defeat this countermeasure.
- WAIT until a check (personal, cashier’s, certified, or otherwise) has cleared the bank to transfer title or the car itself. Funds being made available by a bank DOES NOT mean the check is not counterfeit. Clearing a check can take days or weeks depending on the financial institutions involved. Check with your bank about their particular processes for clearing checks.
- NEVER trust a seller or buyer who says that the transaction is GUARANTEED by eBay, Craigslist, PayPal, or other online marketplace. These sites explicitly DO NOT guarantee that people using their services are legitimate.
- BEWARE sellers or buyers who want to conclude a transaction as quickly as possible. Scammers want to get your money before you have time to think or have a professional examine the deal.
- CALL the buyer or seller to establish phone contact. If the buyer or seller seems to neglect details agreed to via e-mail or is unable to answer questions about their location or the location of the automobile in question, it is likely to be a scam.
- ALWAYS trust your gut. If a deal feels “fishy” or sounds too good to be true, it probably is. Plenty of people use online classified ads to buy and sell cars every day. The vast majority of these transactions are legitimate and go smoothly. Losing out on a “great” deal in order to work with someone you trust could save you big in avoiding a possible scam.
Source: National Consumers League (http://www.nclnet.org/personal-finance/64-fraud/399-avoiding-online-car-buying-scams)
Note: Don’t use Western Union or MoneyGram to send money to someone you don’t know for any transaction (car or otherwise), and if sending a wire, make sure you aren’t sending it to a “money mule” (a scam that has exploded over the past few years where a person transfers stolen money or merchandise from one country to another, either in person, through a courier service, or electronically). To prevent this in the instance of cars,Escrow.com only accepts wires for vehicle transactions.
Escrow.com, based in Rancho Santa Margarita, California, is the leader in providing such secure services for online auto buyers and sellers. Escrow.com has helped facilitate over 10,000 auto transactions over the past decade, with a value of close to $100,000,000. “We have been providing a safe and secure way for car buyers and sellers to conduct transactions for over a decade,” said Brandon Abbey, President of Escrow.com, “and it is needed now more than ever. The amount of fraud that is perpetrated using the Internet exceeds the GNP of some countries.” The firm is presently the only escrow company recommended by the largest of the vehicle marketplaces, and it is endorsed by Autotrader.com and Cars.com, the leading used auto sales sites. However, no matter where the auto sale originates – an online classified ad, an Internet auto auction, a vehicle sales website, etc. – Escrow.com can ensure a safe transaction, overseeing the transfer of the money and delivery of the vehicle. In fact, Escrow.com can and is being utilized by offline buyers and sellers as well due to the security the system provides to both ends of the transaction.
The IC3 on Escrow Fraud
According to the IC3, escrow services fraud is one of the most prevalent areas of online fraud and crime going on today. The IC3 characterizes escrow fraud in the following manner:
In an effort to persuade a wary Internet auction participant, the perpetrator will propose the use of a third-party escrow service to facilitate the exchange of money and merchandise. The victim is unaware the perpetrator has actually compromised a true escrow site and, in actuality, created one that closely resembles a legitimate escrow service. The victim sends payment to the phony escrow and receives nothing in return. Or, the victim sends merchandise to the subject and waits for his/her payment through the escrow site which is never received because it is not a legitimate service.
It is worth mentioning that on this federally-supported site, the IC3 directs its audience to go to Escrow.com’s site for alerts on escrow fraud and tips on how not to become a victim of it in any online transaction.
Source: Internet Crime Complaint Center (IC3) (http://www.ic3.gov/crimeschemes.aspx#item-8)
Both Buyers and Sellers benefit from the use of Escrow.com, a neutral third party, to monitor and transact the exchange of the money and vehicle. The Buyer sends the money to Escrow.com, and the company then alerts the Seller to send the vehicle to the Buyer. This gives the Seller peace of mind, as the Seller does not ship the vehicle until the full payment is verified, so he is protected from fraudulent checks and money order scams.Escrow.com does not release the money to the Seller until the vehicle has been received and approved by the Buyer. This provides online car buyers the same security that off-line car buyers have, and the Buyer reviews the vehicle before the money is sent by Escrow.com to the Seller. A summary of the Escrow.com five-stage process is shown in Table 1 below.
Table 1 – How the Escrow.com Process Works for Auto Sales
|Stage||Step in the Transaction|
|1||Buyer and Seller Agree to Terms
|2||The Buyer Pays Escrow.com
|3||The Seller Ships the Vehicle
|4||Buyer Inspects and Accepts
|5||The Seller is Paid by Escrow.com
In addition, Escrow.com offers a range of additional services to both the buyers and sellers, including:
- Title transfer and collection service
- Lien-payoff service
- Vehicle transport
- Vehicle history reports.
All transactions – online or offline – require a degree of trust. Buyers and sellers will only engage in a market where they have the requisite confidence that they will be able to successfully complete their specific transactions. And with a growing, interconnected and increasingly mobile economy, the need for secure auto transactions is more important than ever before. Thus, the prospects for online auto sales to continue to grow into the future may literally depend on the ability of firms such as Escrow.com to lend trust to the process. As Larry Highbloom, President and CEO of VINtek, Inc., a Philadelphia-based company that provides services to auto lenders and consumers and offers Escrow.com’s services to its clients, observed that: “There are between 10 to 12 million vehicles sold by private parties which require the ability for the buyer and seller to safely and securely confirm the condition and marketability of the subject vehicle. A growing portion of these purchases are moving to the Internet and the ability to obtain escrow and DMV services for an online purchase is becoming more critical to safely and securely conducting the transaction.” Brandon Abbey, Escrow.com’s President and Managing Director, remarked that: “Anyone involved in a high value Internet transaction will benefit from using our services. Our products protect all parties involved in the transaction.”
So, the use of escrow services does not just facilitate smoother, more secure transactions between auto buyers and sellers – whether they are miles or continents apart. Today, they are fast becoming a necessity in the online auto market – to counteract the fraudulent actors in the marketplace, to build trust and even greater opportunities for the auto-oriented auction/ad sites on the Web, and to provide security and assurance for both occasional auto buyers and sellers, as well as those who have built entire businesses around car trading. One should expect rapid uptake in the use of such escrow services, as they may well become the de facto standard method of settlement for auto buying and selling on the Web.
1 U.S. Department of Transportation, Research and Innovative Technology Administration (2012). New and Used Passenger Car Sales and Leases. Available athttp://www.bts.gov/publications/national_transportation_statistics/html/table_01_17.html.
2 Federal Bureau of Investigation (FBI) (2011). Press Release: Hijackers Use False Protection Claims to Lure Online Shoppers (Issued August 15, 2011). Available at http://www.fbi.gov/news/pressrel/press-releases/hijackers-use-false-protection-claims-to-lure-online-shoppers).
3 Federal Bureau of Investigation (FBI) (2011). Buying a Car Online? Read This First. Available athttp://www.FBI.gov/news/stories/2011/august/car_081511.
About the Author
David C. Wyld (firstname.lastname@example.org) is the Robert Maurin Professor of Management at Southeastern Louisiana University in Hammond, Louisiana. He is a management consultant, researcher/writer, and executive educator. He also serves as the Director of the Reverse Auction Research Center (http://reverseauctionresearch.com/), a hub of research and news in the expanding world of competitive bidding. His blog, Wyld About Business, can be viewed at http://wyld-business.blogspot.com/.