Over the past year, we have seen a notable rise in freight factoring fraud. According to a survey by Truckstop, 78% of brokers spend significant time resolving fraud-related issues, and 25% have found themselves embroiled in legal battles.
Reports of fake carriers, impersonating real carriers, fake IDs, fake invoices and many other schemes are growing. Fraud has escalated so much that house lawmakers have introduced a bipartisan bill to crack down on scam freight brokers and trucking companies.
As many industries have seen, increasing technological capabilities have brought along with them both negative and positive changes – the negative changes being the advancements in fraud methods. Now scammers have sophisticated tactics in their back pocket.
The scheme itself varies––including double brokering and load scams––but a common threat is fake trucking companies applying for loans and successfully securing financing. Here’s how it works:
- The fraudsters set up a fake trucking company, which could include a website, business address and even fake personnel.
- The scammers generate fake invoices, shipping documents and bills of lading indicating services rendered.
- The fake trucking company applies for financing.
- Once the scammers receive funds, they disappear, moving money around quickly.
- When the lender attempts to collect on the invoices, they find they don’t actually exist, and they’re out the money they loaned them.
The Damage Freight Factoring Fraud Causes to Lenders
Freight factoring fraud leads to more than just direct financial losses for lenders. It can be extremely detrimental to their business for several other reasons as well.
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- Increased risk: Cases of fraud increase the overall risk profile of the lender’s portfolio. This can lead to higher operational costs as lenders implement stricter verification and monitoring processes to detect and prevent fraud.
- Reputation damage: Multiple incidents of fraud not only damage a lender’s bottom line, but also their reputation, destroying trust among their legitimate clients and investors.
- Legal and compliance costs: Fraud often ends in legal battles, which can be costly and time-consuming. Further, lenders could face regulatory scrutiny and potential penalties if it’s determined they don’t have adequate fraud prevention measures.
- Operational disruption: The need to constantly monitor and investigate potential fraud cases can strain the lender’s resources and keep them from doing high volumes of business.
- Increased insurance premiums: Frequent fraud incidents can lead to higher insurance premiums for lenders, as they are seen as higher risk by insurance companies.
How to Avoid Freight Scams and Fraud in Trucking
Just because scams are running rampant doesn’t mean you are destined to be hit with one. Using the right fraud shield tools will allow you to continue business and avoid the crippling impact of such scams.
Decipher Credit offers lenders a new report, Freight Shield, that shows any potential problems with a specific trucking company that’s applying for financing. The report draws from our extensive database of trucking companies to raise any red flags to point out to the lender. Freight Shield identifies the age of the MCS-150 formation, which helps us to understand what to expect on the reporting. If the reporting doesn’t return many status updates, it could either be a fraudulent company or simply a young company.
Other benefits of Freight Shield include:
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- Cross-checks the address used for the formation of the company applying for the loan and compares it to a database of commonly used compliance companies
- Checks the VINs and inspection activity associated with the account
- Confirms the history of the equipment, where it came from, if it was previously owned, and how long ago it was acquired
- Verifies if the trucking company has been through the necessary weigh stations within the past six months
- Cross-references address, emails, phone numbers with other carriers and flags shared data by multiple carriers in addition to any changes in status
Instantly Detect Unauthorized Companies
Decipher Credit helps to immediately weed out unauthorized trucking companies. Every company––no matter if they’re brand new or well-established––requires authorization from the Federal Motor Carrier Safety Administration (FMCSA). In Decipher Credit, the lender can simply hit a button and order a company’s official Certificate of Authority directly from the Department of Transportation. Not only will this instantly indicate if a company is real or not, but it also speeds up the process for real trucking companies seeking loans. Lenders can offer customers faster approval and close loans faster with less risk.
Decipher Credit also has many other fraud prevention tools, including ID Verification and Bank Account Verification, that when combined, help lenders reduce risk.
To see a demo of the Freight Shield report and how it can help you avoid scams, click here.
