A bust-out can mean many things.

Allied prisoners of war tried to bust out of their enemies’ brutal stalags during World War II. “The Great Escape” movie of 1963, based on a true story and starring Steve McQueen, offered a nearly true-to-life depiction.

Likewise, incarcerated prisoners are depicted as always looking for a way to escape their prison settings, or bust out, to freedom. “Escape From Alcatraz” in 1979,with Clint Eastwood in the lead role, is based on the true story of the 1962 escape from the famous prison, which is now a tourist attraction managed by the National Park Service. 

In our industry, there are two types of bust-out schemes. Agents need to be aware of both to help F&I managers spot the red flags. 

Bust-Outs in the Auto Industry

The first type of scheme is connected to synthetic identity theft. A thief or a ring creates a nonliving entity by combining a stolen Social Security or Individual Taxpayer Identification number with a different person’s name, a third person’s address and a random birthdate. Think of Dr. Frankenstein creating his play toy.

The synthetic monster’s playbook is to use its identity to open small credit card accounts. They then pay on time for a couple of years to create a favorable credit profile. 

Then one month, the synthetic busts out on a shopping spree, maxing out credit cards and purchasing big-ticket items, then disappears. Since the synthetic doesn’t exist, banks and dealers are left holding the default bag.

The second bust-out scheme occurs when the thief finances a vehicle and pays a few payments on time. When it is time to bust out, the thief makes one large payment or several rapid payments, knowing the payments will bounce on the account, which temporarily reduces the balance.

The thief then goes shopping, visiting a dealership to trade in the vehicle toward the purchase of a different vehicle. When the salesperson calls for a payoff, it is of course artificially low.

With a great amount of equity in the deal structure, the management team moves forward with the sale. Since the thief doesn’t plan to make the payments, they will often agree to the left column on the menu. 

The F&I manager spins the paper, the thief leaves with the vehicle, and everyone is happy — until the other shoe drops. 

Impact on Dealer

In our second scenario, the thief’s large or rapid payments are returned for nonsufficient funds and the payoff balance increases. The trade-in lien holder refuses to release the trade title until the legitimate payoff has been satisfied. 

As far as the finance source is concerned, it funded a contract that did not accurately disclose an authentic structure, so it can return that contract to the dealer. Now the dealer is left holding a contract that is worth considerably less than the amount needed to clear the lien on the trade title.

The existing lien holder on the trade may attempt to pursue the dealer for the full balance owed or repossess the vehicle. And if the dealer bought the thief’s vehicle directly in a “street purchase,” the dealer can’t get good title to sell it.

None of these impacts are acceptable.

Know the Red Flags 

Some of the potential red flags of a bust-out scheme include:

• Too good to be true: Scammers know big purchases can blind retailers. F&I managers and the people who train and coach them must maintain their risk manager roles.

• Small payoff: Be leery when a payoff balance seems low for a newly purchased trade-in or street purchase.

• Big disparity: Always compare the payoff balance to the balance in the credit bureau report. Investigate significant variances.

These identity thieves are nefarious. And they continue to plot new schemes, which we must stay vigilant to.

I’ve created a policy document to outline the procedure for potential bust-out transactions and how to mitigate potential losses. Write if you’d like a copy.

Continued good health, good luck and good selling.

DIG DEEPER: Mileage Manipulation Up

Gil Van Over III is executive director of Automotive Compliance Education, or ACE, founder and president of gvo3 & Associates, and author of “Automotive Compliance in a Digital World.”