Chevrolet Dealership Slapped With $2M Fine for Loan Fraud

Hallman Chevrolet, Erie, Pennslyvania

An Erie, Pa.-based dealership agreed to pay a penalty after getting caught in a fraud scheme in which the dealership sold vehicles at falsely inflated prices to subprime consumers who could not afford them, the U.S Attorney’s Office said Friday.

Specifically, Hallman Chevrolet and the Hallman Auto Group falsified subprime loan documents and inflated prices of cheap jewelry brought in as collateral for purported down payments for the overpriced vehicles, which were primarily used.

“Through the scheme, Hallman Chevrolet earned sales and profits that were otherwise impossible,” the U.S. Attorney’s Office noted. “For those financial institutions impacted by the loan scheme, loan default rates were over double the industry standard.”

The dealership took responsibility and has agreed to pay a $1.4 million fine and $737,347 in restitution, as part of an agreement to end a federal prosecution into bank fraud.

The case comes just a month after Ford Motor Credit Co. sued a chain of Texas dealerships for $41 million, claiming the chain and its owners defaulted on financing agreements by delaying payments on sold cars and falsifying records to obtain extra loans, according to the federal court filing.

“The most common types of dealer-related fraud are similar to what we saw at Hallman Chevrolet, and they can be more prevalent in subprime lending,” Frank McKenna, chief fraud strategist at PointPredictive, told Auto Finance News. “Boosting the value of the collateral and then falsifying a down payment and/or misrepresenting the borrowers’ income are the ways that unethical dealers help borrowers with lower credit scores and little money qualify for loans. Unfortunately, as we saw with Hallman, this ends up in unexpected high default rates since the borrower was never in the position to pay the loan in the first place.”

With dealer-related fraud on the horizon, it’s vital that lenders keep an eye on their dealerships, the impact of dealer fraud can hit a lender for millions in losses in a matter of months if lenders do not have proactive ways of detecting that fraud before loans start to default.

However, it could just be a case of a “few bad apples,” McKenna said. “Only a fraction of the dealerships out their behave unethically to consumers or lenders, most really do try to protect their business and the consumers from fraud.  As few as 3% of dealers that lenders work with might have excessive issues with fraud such as the ones we saw at Hallman Chevrolet.”

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As Associate Editor of Auto Finance News, Nicole Casperson reports on the latest news, trends, and innovations impacting the auto finance space. Nicole is an experienced business reporter from Texas, and she previously specialized covering the housing and mortgage industry. Nicole received her Master of Arts in Mass Communication and her Bachelor of Arts in Journalism both from the College of Media & Communication, Texas Tech University.