Online Car Scams Shift Into High Gear (Part Two)

The Internet has made car shopping easier than ever—with websites that provide shop-from-home pricing information and inventory listings. But hiding amid the real online deals are a growing number of scams that can put vehicle shoppers and sellers on the road to a rip-off.

In the second of two parts, Scam Alert explores a surge in phony escrow companies that falsely promise to provide security in the online purchase of a car. In part one, we looked at how consumers are bilked by private-party “buyers” and “sellers" of used vehicles.

The scam usually starts with an online classified advertisement for a nice car at a great price. But it often works because of a phony promise of protection—bilking consumers out of thousands of dollars.

According to the FBI, most online vehicle transaction scams involve phony escrow companies or other third-party programs that promise to help shoppers ensure a safe transaction. In reality, they are run by the very scammers they vow to protect against, using phony company names or stealing those of legitimate businesses.

It works like this: Consumers looking to buy a car on auction websites such as eBay Motors or Yahoo, inventory websites like AutoTrader or Vehix, or classified websites such as Craigslist strike a deal in cyberspace—often for far less than the true market value of the vehicle.

Then, to protect the interests of both parties, the phony seller—who may pretend to be a soldier about to be deployed overseas—suggests that the buyer use a third-party escrow company to “protect the interests of both parties,” according to the Better Business Bureau (BBB). The bogus escrow company instructs the buyer, usually by e-mail, to send payment for the vehicle—typically with a Western Union or MoneyGram wire.

The fake company may provide phony receipts or transaction orders, but the buyer never sees the vehicle.

“The purpose of an escrow service is to create a safe environment where both the buyer and seller feel comfortable exchanging money and goods,” says BBB spokesman Steve Cox. “Unfortunately, scammers have realized they can cash in on this type of transaction by creating a façade of trustworthiness as an escrow company.”

In one case last year, the BBB reports that more than 50 people lost a total of $200,000—in payment for cars they thought they had bought on Craigslist—to crooks running a phony escrow company, Global Payments Inc. In reality, that Atlanta-based business provides electronic transaction processing services and is not an escrow company. In another case, scammers using the name Best Auto Trades created a website to give their victims a false sense of security.

Here’s how to protect yourself when buying a vehicle or other big-ticket item online:

Check it out. Verify the legitimacy of any escrow service by googling the company name for news articles about it. Don’t just depend on links to a website, which can be a front. Also check the company name with the Better Business Bureau, your state attorney general or state licensing board. Be suspicious of recommendations by an online buyer or seller.

Follow the money route. Legit companies may ask for money wire transfers, but the transfers will go from your bank account to theirs; they never ask for a person-to-person transaction. Instead, they provide a routing and account number that can be checked by contacting the receiving bank directly.

Check the website address. Avoid websites whose domain name ends in .org, .biz, .cc, .info or .us. These domain addresses are easier to purchase than those ending with .com, which are more likely to be authentic.

Call customer service. Reaching a recording or fax number rather than a live person should raise a red flag for a potential scam.

Look at the language. Other warning signs include generic e-mails from the escrow company, such as those beginning with “Dear sir” rather than your name; misspellings and poor grammar (which usually indicate a foreign-based scam); or overuse of words such as “safe” and “secure.”

Escrow. com has more tips on spotting a fraudulent escrow company website. If you’ve fallen victim to an online car transaction scam, report it to your state attorney general.

Sid Kirchheimer is the author of  "Scam-Proof Your Life" (AARP Books/Sterling).