Straw Buyers

Straw Buyers

A “straw buyer” is a person who purchases something on behalf of another person in order to circumvent legal restrictions or enable fraud.

It started off as a routine investigation. A non-payment on a vehicle finance loan, with a customer proving to be very evasive.

It soon became evident that vehicles were being purchased on behalf of 3rd parties. However, of greater concern were those transactions that were aimed purely at defrauding the finance provider. In the months to follow, these matters increased steadily and with increasing concern. These would prove to be not only cases of straw buying but a growing fraud that would impact several operational areas of the organization and a variety of stakeholders. We soon realized that what was required to mitigate this type of fraud and minimize our exposure and losses would be a multi-pronged approach ranging from investigations, advanced data analytics, training and awareness campaigns, industry collaboration and implementation of new technology.

A “straw buyer” is a person who purchases something on behalf of another person in order to circumvent legal restrictions or enable fraud. The purchaser has no intention of utilizing the purchased item. Straw buying is considered an illegal activity.

Motor Vehicle Finance Industry- How does this occur?

To qualify for vehicle finance, an individual is required to provide all the necessary supporting documents to the finance provider and to meet certain minimum lending requirements, including but not limited to income, affordability and credit worthiness.

If an individual did not meet the afore-mentioned criteria and requirements, our investigations revealed that straw buying became a common occurrence. It was discovered that motor vehicle dealerships also actively participated and in some instances, encouraged straw buying to ensure that a successful transaction was completed.

The reality of such a fraud is that there are far reaching consequences for all affected parties, including the straw buyer, person in actual possession of the vehicle, financial institutions, insurers and Licensing and Registration Authorities, all of which will be explored in greater detail below.

Impact on all Stakeholders

Straw buyer

  • They are legally bound to pay all the monthly installments and charges associated with the finance agreement.
  • They often lay blame at the feet of the person for whom the vehicle was purchased or the motor vehicle dealership involved, despite them being an active participant in the transaction. However, they were often found to have been co-erced into the transaction, through the payment of fees, the creation a false sense of security and promise and sometimes even through blackmail e.g. threats and the like.
  • They will still be contacted for payment and be subject to all legal processes to recover the asset and outstanding debt. This will also lead to a default or judgement being listed with the various credit bureaus which would naturally impact the credit score and the ability to apply for future finance.
  • They face the risk of criminal charges being instituted against them and legal costs being incurred.

Person in actual possession of the vehicle

  • There have been instances when the vehicle was voluntarily surrendered after agreements were reached with all the affected parties.
  • It became common for the vehicle to be sold onto often, unsuspecting third parties, resulting in significant financial losses for the finance provider with the perpetrator being untraceable.
  • They face the risk of criminal charges being instituted against them and legal costs being incurred.

Financial Institutions and Insurers

  • Identifying straw buyers during the Lending process has often proved problematic for finance providers as typically all the lending requirements and criteria have been satisfied. It is almost impossible to identify at this stage that the straw buyer would not be in possession of the vehicle.
  • Non-payment of loans increase losses and default ratios.
  • Straw buying is also often accompanied by the fraudulent change of ownership and title holder details on a vehicle registration document. These are often changed from the details of the straw buyer into the name of the person for whom the vehicle was purchased. This in itself poses legal and insurance challenges in the event of claims lodged.

Licensing and Registration Authorities

  • The original vehicle registration document is held by the finance provider until all debt obligations under the finance agreement have been satisfied. However, fraudulent changes to the title holder and owner details often occur at the various Licensing and Registration Authorities without all the required documents. This leads to the generation of a duplicate registration document.
  • It was often found that there were concentration risks in geographical areas and Licensing and Registration offices.

Interventions to address these challenges and mitigate Fraud

While investigations are always necessary in such cases, they are reactive in nature. We soon ascertained that our focus had to be on proactive and preventative interventions.

Criminal Proceedings

  • Criminal cases were registered in all instances of fraud, misrepresentation and theft and any other offences that were committed during these various engagements. Many cases resulted in the successful prosecution of the offenders, in the hope that it would also serve as deterrent for future offenders.


  • Advanced data analytics were employed to identify outliers and patterns of concern from the Lending to Recoveries processes.
  • By engaging with the relevant service providers, it was possible to design reporting mechanisms that enabled the real time notification when details on vehicle registration papers were fraudulently changed. This allowed a quicker response time to take appropriate action.

Training and Creating Awareness Initiatives

  • The findings from the various investigations and Analytics exercises were provided to Business Partners to assist with Training and Awareness initiatives. There was significant emphasis placed on lending criteria, with improved interventions during the customer authentication and on-boarding processes.
  • These findings were also brought to the attention of our motor vehicle dealerships to the extent that it involved their employees.
  • There were also campaigns aimed at the education of our customers alerting them to the consequences and dangers when agreeing to participate as straw buyers.

Networking and Industry Collaboration

  • It was critical to engage and collaborate with all industry stakeholders as straw buying accompanied by the fraudulent change of the vehicle registration details impacted all finance providers in the vehicle finance market.
  • These engagements also provided an apt opportunity to explore solutions with the relevant service providers.

New Technology

  • To prevent the fraudulent change of the vehicle registration details, system and product development was being explored, so that it could possibly have operated in a similar manner to a One- Time Pin (OTP).
  • Once fully functional and integrated, a change to a vehicle registration document would only take place once the finance provider authorized same.

Finance providers are facing increasing challenges when dealing with straw buyers, including but not limited to financial, reputational and legal risks. While the financial losses are significant, it is also critical to understand the link between straw buying and the various other effects as outlined above. My experience through this investigation, which later evolved into a project made me alive to the fact that cases of this nature, not only required prompt investigation upfront, but more especially a multi-faceted approach, with cross-functional teams and service providers, using an array of Fraud Prevention techniques.