Bust-Out Fraud Can Get Anyone With Great Credit A New Car Collection In Less Than Thirty Days, For Now

A massive loophole in the banking system is allowing criminals to commit bust-out fraud, also known as “ghost funding”, by taking out multiple car loans and selling the cars, leaving the fake identity or real person with ruined credit.

According to Bloomberg Businessweek, this scheme has aided criminals in raking in as much as $250 million in the last year.

The loophole exists because banks take around 30 days to report loans to other institutions, allowing individuals with good credit to apply for multiple car loans in a short amount of time. FICO has dubbed this the “infinite money glitch”.

Experts say that artificial intelligence is making it easier to create false documentation, and that the rate of these schemes has increased by 83% in the last five years, with auto loan fraud rising 13% in the last year.

Point Predictive, a firm that assesses credit risks for dealerships, is testing a program to immediately share loan information, but strict privacy regulations may hinder its effectiveness.

The story of Omar Guardia Jr., who took out over $700,000 in loans for at least 14 vehicles, and a Miami waitress who built a car collection including a Corvette Stingray, Toyota Highlander, and Mercedes-Benz S560, highlight the ease with which this fraud can be committed.

The loophole is expected to be closed eventually, but for now, it remains a significant issue, with $250 million lost last year and 1.4% of all car debt attributed to auto loan fraud.