In Fraud, Risk Management, Title and Registration

Fraudsters are an industrious and creative bunch. They are constantly looking for new ways to take advantage of consumers, businesses, and the various systems that companies use. They will exploit any weakness or vulnerability they can find – regardless of industry. And while automotive title and registration fraud doesn’t get the same coverage as financial fraud, it is a very real and challenging problem.

The Main Types of Title Fraud

Title fraud may not be something you have heard of before, but it is a growing problem. Title fraud happens when the title, or certificate of ownership for a particular vehicle or vessel, does not accurately report important information about the history of that vehicle or vessel.[1] This type of fraud is intentional, and usually designed to either hide negative vehicle history or enable fraudsters to avoid paying title and registration fees.

Title fraud is commonly seen in three main categories:

  • Odometer Rollback
  • Title Washing
  • Title Skipping

Let’s look at each of these categories to understand the implications for consumers and for title/registration processors.

Odometer Rollback

As the market for used cars continues to grow, odometer rollback fraud is increasing. Unscrupulous dealers or owners can tamper with the odometer to make the car appear to have fewer miles on it than it actually does. As this article points out, “[t]he number of cases….is rising each year since the fraud is not complicated to perpetrate.”[2] And it’s not an isolated issue; the article goes on to note that “[a]t least 1.5 million cars have incorrect mileage and a minimum of another 200,000 cars are tampered with each year.”[3]

Many of the instances of odometer rollback happen during peer-to-peer transactions, such as when a buyer purchases a car listed for sale on Craigslist or in the classified section of the local paper. Because of the face-to-face nature of the purchase, the buyer is not actively investigating the title for accuracy. But a recent lawsuit alleges that the luxury brand Ferrari was aware of the potential for odometer rollback and may have actively participated, raising the specter of more systemic fraud.[4]

Since fraudsters will typically roll back mileage from 50,000 to 75,000 miles, buyers can often end up paying $4,000 (or more!) than the used vehicle is actually worth.[5] The impacts to a title processor are less pronounced, since most reputable dealers will ensure title perfection and ownership prior to selling the vehicle.

Consumers can protect themselves by purchasing vehicles from reputable dealers and running background reports through services such as Carfax.com. Processors can use automated title perfection services to ensure accuracy and consistency in their efforts.

Title Washing

Another type of title fraud is known as title washing. In this scenario, fraudsters exploit the paper-based title process to avoid having a vehicle title “branded” or designated as salvage, flood or rebuilt. These criminals will frequently alter or counterfeit paper documents, or take a salvage or flooded vehicle to another state where the title process does not require them to brand the title as a salvage/flood/rebuild.

With the “washed” (altered) title in hand, the fraudster can attempt to sell the salvage or junk vehicle for the same price as a mechanically sound model of the same make, model and mileage. And title washing is not a small-scale issue; according to Carfax.com, a provider of vehicle history reports, “800,000 vehicles in the US – including at least 500 taxis – have been ‘title washed’ to conceal their true identity.”[6]

For vehicle purchasers, title washing represents a two-fold punch. First, consumers overpay significantly for a vehicle that is being misrepresented as something it’s not. Second, they are taking those vehicles – which in many cases are not mechanically sound or safe to drive – and putting them on the roads. As Chris Basso, public relations manager at Carfax.com said in an interview with DailyFinance, “It is a paper scam that has physical consequences.”[7]

For processors, title washing can represent potential liability. So what can consumers and processors do to combat title washing?

The primary way to address the issue is to rigorously adhere to title perfection from owner to owner. Processors can do this through automated title and registration solutions, which rely on trusted third parties to shepherd a title through the transfer process. By partnering with knowledgeable experts in the title and registration space, processors can ensure the title is perfected quickly and in compliance with all applicable federal, state and local laws.

Consumers can insist on seeing the physical title prior to purchasing a used vehicle. Inspecting the document for signs of manipulation, discrepancies in ownership names or addresses, or other irregularities is one way to identify a potentially fraudulent title.

Consumers would also be wise to carefully inspect the vehicle itself for signs of damage or recent repair if they have reason to believe that the vehicle may be part of a title washing scam. Things like evidence of water damage, recent cosmetic repairs, persistent electrical issues or rust are all potential red flags that a vehicle may not be as sound as it appears.

Title Jumping

The final type of title fraud we’ll discuss is called title jumping. In this scenario, the scammer will usually buy and sell a vehicle without registering it, or titling it, in their name. Also known as “title floating” or “title skipping,” this basically means a title jumps from one owner to the next without any record to document the transition. [8]

Title jumping is primarily used by criminals to avoid paying taxes on vehicles. From a dealer and processor perspective, the implications include potential “penalties, fines and/or jail time.”[9] Since title jumping is illegal throughout the country, dealerships and processors can avoid this issue entirely by using an automated title and registration solution for timely, accurate title perfection.

For consumers, title jumping can mean a host of headaches. From difficulties getting the title under the buyer’s name, to painful discussions with the seller, to incomplete vehicle history, consumers never come out ahead when faced with title jumping.

Options for consumers to pursue include trying to return the vehicle, filing a claim against a business that sold a vehicle with a jumped title, or independent legal action. None of these are pretty or fast, but consumers can again prevent some of these issues by requesting to see the physical title prior to purchasing the vehicle.

Automation: The Solution for Title Fraud?

While there will always be folks out there who are willing to flaunt the law in face-to-face transactions, dealerships and professional title processing organizations can take immediate steps to safeguard their title process from fraud.

One of the most effective ways? Partner with an organization, like Zoot Enterprises, that provides automated title and registration perfection services. By using dedicated title and registration platforms, sellers can rest assured that their titles are perfected in a timely and accurate manner, effectively eliminating the potential for title fraud.

Ready to automate your title and registration process? Learn more or contact Zoot today.

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