Types of Fraud
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Types of Fraud

 Methods of lease fraud are constantly evolving.  Individuals perpetrating these frauds have studied our industry's practices and methods.  Many of these frauds involve Vendors and Lessees who meet most of the screening criteria utilized by leasing companies - directory assistance listing, time in business, and even physical storefronts.  Lease Police, Inc has identified the following general types of lease fraud:

  • Disguised Working Capital Fraud - In this scenario, a vendor presents himself as a legitimate seller of equipment, however, he is nothing other than someone soliciting for working capital loans.  He will take a customer's current equipment and disguise it as his equipment and lease it back to the customer (the lessee).  The vendor will keep 30% to 50% of the lease proceeds and will give the remainder to the lessee.  This type of fraud can be very damaging and hard to detect, as many of the re-liquefied lessees will make payments for a while after funding.  Most funders will experience a default rate between 10% to 40% with these transactions.  Many of these vendors will "spread their paper" among several sources to further conceal their detection. Using LeasePolice.com, detecting these vendors is easy - just take note of excessive early termination activity.
     
  • Overpriced Equipment Working Capital Fraud - A vendor will overprice a piece of equipment and offer the debtor or lessee money back.  For example, a vendor will lease a $5,000 computer for $30,000 and give the debtor or lessee $15,000 as an inducement to enter into the lease.  This type of fraud will have higher loss rates over the portfolio life, but because the debtor/lessee has just received a "lump sum" from the vendor, they will make payments for a while. Using LeasePolice.com, detecting these vendors is easy - just take note of excessive early termination activity.

  • Product Representation Fraud - In this scenario, the vendor may offer a deal that is "too good to be true".  It may involve a 100% money back guarantee, inflated promises on the equipment, or even a "promise and disappear" scheme such as the recent Norvergence transactions.  These vendors appear to be tremendous engines of new leases.  They can produce hundreds of new leases per month from the beginning of their existence.  In most of these cases, the vendor is gone after one to two years, leaving funders an endless stream of litigation.  Using LeasePolice.com, detecting these vendors is easy - just take note of a high number of recent inquiries for a newer vendor.

  • "Broken Up" Transaction Fraud - This type of fraud includes activity by Vendors and Debtors/Lessees who break up a larger deal into smaller pieces to avoid financial disclosure (without disclosing their other requests to the lenders).  In most cases, those involved are aware of the application-only limits and apply for a large number of smaller transactions due to poor financial information.  Imagine a $350,000 deal that is achieved by "splitting the transaction into five $70,000 transactions with five different funders.  Some of these deals are further disguised by applying for corporation-only signatures - with no credit bureaus reviewed.  In many cases, the debtor/lessee is already in distress and they fold under the higher debt levels.  Using LeasePolice.com, detecting these lessees is easy - just take note of a high number of recent inquiries.  Even corp-only transactions are shown in LeasePolice.com.

  • Past Due Account "Layoff" Fraud - This is one of the oldest and least reported types of fraud in the industry.  A Vendor has an internal delinquent open account with a customer.  They usually threaten the customer to either pay the past due balance or they will pick up the equipment.  As an option, they offer the past due customer the option to convert their account into a lease.  By converting the delinquent customer into a lease, they get paid by the equipment leasing company, and the leasing company gets an almost instantaneous delinquency.  Many of these deals show up as first payment defaults.  All participants are legitimate companies and fraud is almost never suspected!  Using LeasePolice.com, detecting these Vendors is easy - just take note of a high number of early terminations/defaults using the LeasePolice.com system.  

  • General Misrepresentations By Vendors and Lessees - This general category includes activities such as submitting altered financial statements, hiding prior bankruptcies, hiding ownership, false references, misrepresenting used equipment as new, falsifying actual date of sale or delivery, equipment being sent to other locations without disclosure, concealing large judgments or liens, and leasing the same collateral twice.  Using LeasePolice.com, detecting these transactions is easy.  LeasePolice.com subscribers can report any suspicious activities and they will be posted in our datafiles for future review.
     

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