Online Car Shoppers Warned About Escrow Scams

A recent listing on eBay Motors

Yes, the Internet has made car shopping a lot easier, but it has also opened both buyers and sellers to new scam hazards.

The automotive site Edmunds.com reports scammers are using a very practical device – the cash escrow service – to cheat buyers who aren't careful. Ordinarily, a cash escrow service protects a buyer. How is it used in a scam?

When a buyer agrees to purchase a vehicle found online, he or she is directed by the seller to send money to a phony escrow agent, and is promised that the cash will be held until the vehicle is delivered. Once the cash is paid, the scammers cease any more contact with the buyers, never to be heard from again and needless to say, the car is never delivered.

These fraudulent escrow services are often given legitimate-sounding names, with some scams even using variations on Edmunds.com's name to give the buyer confidence that the transaction is legitimate.

Since March 2010, Edmunds.com has received 413 reports of escrow scams using the company's name. Of those, at least 35 victims have lost money by following through with the transaction.

Edmunds isn't in the business

"Edmunds.com does not provide 'purchase protection' plans or any other escrow-type services for vehicle sales," said Ken Levin, senior vice president and general counsel at Edmunds.com. "If you see a classified ad that references an Edmunds escrow service, please report it immediately to the web site hosting the ad."

Scammers also hang out at other automotive sales sites, hoping to catch both buyers and sellers off guard. Edmunds has a place on its site where consumers can report cams to some of the most popular automotive classified listing sites. 

A key to avoid getting caught up in this scam is to not allow the seller to pick the escrow agent. Instead, the buyer should choose the firm that will hold the funds.

"Buying a car online is still generally a very safe practice, and the vast majority of transactions go off without a hitch," said Phil Reed, senior consumer advice editor at Edmunds.com. "But when you're buying anything online — whether it's as big as a car or as small as a pencil — it's always wise to take the appropriate steps to ensure that you're dealing with a fair and honest seller."