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The defi Team defi INSIGHT, Fraud, Originations

Straw Buyer Red Flags

Most lenders encounter straw buyers at some point but only realize it once a loan defaults without a single payment made. Thanks to the Internet, it’s virtually guaranteed lenders will encounter more straw buyers. With ongoing data breaches that expose sensitive personal information to global fraud rings and these fraudsters’ technical skills, straw buyers will continue to be a problem for auto lenders.

Although they’re not the leading source of fraud, straw buyers can cause serious losses to a lender. The straw buyer is typically a front for a fraud ring focused on high-profit auto resales, which are often sold off to international buyers. The straw buyer provides a real social security number, a verifiable address, and other seemingly credible information that masks their true intent. Even with plenty of time to review a loan application, an unsuspecting underwriter still often won’t find any red flags indicative of a straw buyer.

Professional straw buyer fraud is perpetrated not only by fraud rings but also by unscrupulous dealers who want to unload slow-moving vehicles. Dealers use straw buyers to purchase cars with grossly-inflated valuations. These straw buyers usually get a kickback and occasionally keep the overpriced vehicle. The dealer makes a quick and often hefty profit with this scheme.

Straw Buyer Red Flags 

There are several straw buyer red flags that lenders can use to identify fraud and prevent it from hurting their portfolio’s performance. Any of these characteristics can indicate a straw buyer fraudster.


  • Profiles that don’t match the purchase – It’s plausible that a grandmother would purchase a two-year-old Toyota Camry, but she’s not likely to be parking the latest ‘Vette in her garage. Equally unlikely is a 21-year-old working at McDonald’s attempting to purchase a Tesla Model S. Certain combinations are so unlikely that they must be flagged.
  • Unrealistic income – Often, income statements (which are very easy to falsify) don’t match the straw buyer’s age or supposed profession. Six-figure incomes are realistic for young high-tech, finance, and health-care professionals, but not for someone who’s getting an hourly wage or someone under 25 with only a high school diploma.
  • Spotless employment history – Like income statements, the Internet can provide a fraudster with a full range of fabricated employment histories, including references that make the straw buyer appear to be on the fast track to a C-level executive position.
  • High collateral valuation – Collateral inflation is one of the easiest straw buyer schemes. With a simple number change by the dealer, everyone’s ensured a huge profit from the scam, except the lender.

These are just some of the more obvious straw buyer red flags. So how can a lender efficiently and accurately detect and decline fraudulent applications? The best lenders use automation and analytics.

Detect Straw Buyer Red Flags

No lender has the resources to manually evaluate every loan application to detect straw buyers. However, the latest advances in automation and analytics can address this problem. Three of the best methods to prevent straw buyers are: 

  • Fraud analytics that use sophisticated pattern recognition algorithms to recognize loan application discrepancies or inaccuracies. These include purchase profiles, social security numbers, incomes, employment histories, and residences that correlate with fraud.
  • Verification services that confirm or refute suspected misinformation about income, employment, and used vehicle valuation
  • Loan portfolio analytics that identify regions or dealers where deals have been generated that then quickly default. Straw buyer schemes often exhibit certain patterns and have characteristics in common. When lenders discover them, they can then modify their credit policies accordingly.

Fraud analytics and verification services are easily integrated into the workflow of modern loan origination processes. Calls are made automatically so lenders can efficiently and effectively combat straw buyer fraud. Analytics provides an additional level of defense by identifying straw buyer characteristics to prevent future fraud proactively.

Protecting Your Portfolio From Straw Buyers With defi

Straw buyer fraud schemes represent a huge risk for auto lenders who aren’t prepared to combat the threat. Loans that default without a single payment made are typical of fraud involving a dealer. Fraud rings can be even more damaging when they target a specific region. The best lenders recognize the extent of the threat and use all the tools in their tool chest—especially automation and analytics—to spot straw buyer red flags.

If you are looking for a platform that harnesses the power of analytics and automation to effectively protect your portfolio from fraud, defi SOLUTIONS can help.

Getting Started

defi SOLUTIONS offers solutions for a lender’s complete loan or lease lifecycle. Partnering with captives, banks, credit unions, and finance companies, defi’s market-leading solution helps lenders exceed borrower expectations. From digital engagement through the complete lending process, defi sets new standards for flexibility, configurability, and scalability in originations, servicing, and managed servicing. defi SOLUTIONS has the backing of Warburg Pincus, Bain Capital Ventures, and Fiserv. To learn more about how to spot straw buyer red flags, please visit

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