Catching McLovin: A Factor’s Perspective on Fraud in Freight

In the ever-dynamic world of transportation and logistics, "factor" often gets treated like a dirty word. However, for those of us in the factoring business, the real "F-word" is “Fraud.” From fake invoices and bogus rate confirmations to counterfeit bills of ladings (BOLs), emails, phone numbers, and even bank statements, we’ve seen it all. Our battle against deception is relentless and constantly evolving.

Experiencing fraud as a factoring company is almost a rite of passage. We share stories about fraud together and learn from one another. Factoring companies may be a competitive group but  one commonality among all is that we don’t want scammers to get the better of ourselves, our customers, or the industry as a whole.

The Shocking and Terrifying Reality – Why we’re concerned about the FMCSA

Recently, rumors began circulating all corners of the freight market that that the FMCSA approved MCS-150 changes via mail-in submissions without properly verifying their authenticity. If someone is unable to access their online FMCSA account, carriers and brokers are required to mail in submissions to the FMCSA to change their contact information. After receiving that submission, the FMCSA should send a verification letter to the original address on file, which even though it can take weeks to update, provides a layer of security for all stakeholders. However, the current rumor is that this verification step was missing for a significant period of time, which allowed for unauthorized account changes to many accounts. If the rumors are true, we may never know whether the issue was due to under staffing, potential oversight, or just plain negligence. What we do know is that thousands of authorities have had their email addresses and phone numbers updated unbeknownst to the actual owners! We believe this is the first domino to fall which is leading to Massive Identity Theft!

The Evolution of Fraud from a Factor’s View

Factoring companies have seen fraudulent activities evolve through the years, starting with undelivered loads, fraudulent fuel advances, forged documents, and now, developing into intricate schemes involving double brokering and theft of freight. Fraudsters adapt quickly, always finding new loopholes to exploit using the latest available technologies. For the past two years, Brokers and their customers have been the main victims of fraud. They have faced everything from quasi-legal double brokering to outright theft where cargo is sold in an overseas market. Today, fraudsters not only target brokers and shippers but have looped back to factoring companies using sophisticated tricks while dangling hard-working carriers as bait.

Recent Trends in Fraud

The latest trend we’ve seen on the factoring side involves scammers posing as carriers through identity theft measures highlighted above. These perpetrators apply for factoring under the guise of needing urgent financing due to the freight recession. We regularly see applications from carriers who’ve purportedly never factored before suddenly landing huge contracts from reputable companies like Lockheed Martin, Goya Foods, and General Dynamics. The sophistication of these scams is alarming, with everything from direct phishing scams to regulatory exploits.

Here’s How This New Fraud Works:

Step 1: Identity Theft Through Phishing Scams or Hacks. Perpetrators obtain USDOT PIN numbers via sophisticated emails that direct victims to a site masquerading as the legitimate FMCSA portal, where they steal carrier information. They exploit FMCSA verification checks to change the carrier's email and phone numbers with the FMCSA.

Step 2: Insurance Changes. Scammers contact insurance companies or make changes online, adding "trucks" to policies to artificially inflate their truck counts, making their operations appear more substantial. This manipulation is possible because they have already altered the carrier's contact information in Step 1.

Step 3: Factoring Application. Factors unexpectedly receive a factoring application through their online sign-up links—a rare occurrence.

Step 4: Underwriting Checks. Factoring companies use UCC filings when working with carriers. The absence of a UCC filing is considered a red flag, particularly if the authority has been in existence for some time.

Step 5: Setup Document Verification. Factors rigorously scrutinize all submitted documents for authenticity, including driver's licenses, SSN cards, bank statements, and more. Unfortunately, all listed documents are either forged or improperly obtained through the FMCSA and various Secretary of State websites.

Step 6: Invoice Verification. Scammers submit invoices for direct shippers instead of a traditional broker to avoid detection. Factors, having established verification tools within the broker community, might be misled into verifying transactions via a newly created email, potentially leading to significant oversight.

Step 7: Funding. An unsuspecting and overly trusting factoring company might fund the fraudster for thousands of dollars into a deceptively set up bank account, believing it to be legitimate, but in reality, it was based on forged documents submitted in Step 5.

 Protecting What’s Ours - Advice for Carriers, Brokers, and Factors

To further safeguard our industry, specific advice for carriers, brokers, and factors includes:

For Carriers:

-          Check Your Info: Regularly log in to your FMCSA profile to check whether your contact information has been altered without your knowledge.

-          Insurance Verification: Contact your insurance agent to confirm that no unauthorized trucks have been added to your policy.

-          Beware of Phishing: Be vigilant about emails that direct you to login pages that seem legitimate but might be fraudulent. Always confirm that the URL ends in .gov and avoid clicking on suspicious links.

-          Factoring Partners: Partner with the experts. Factors have been there, done that, and seen it all. Your factoring partners should be monitoring double brokering and current trends in fraud. In this environment, your factoring partners should be subscribing to all the resources and be answering your questions on how to protect your business.

For Brokers:

-          Use Trusted Carriers: Always opt for carriers you know and trust. Preferred Carrier Networks are your most valuable asset during these times and also help to provide your customers with confidence and a sense of dependability.

-          KYC Practices: Know Your Customer and Know Your Carrier. Request pictures of trucks, placards, and drivers' licenses. Video calls can also help verify identities. Any pushback to any of these requests should signal a red flag.

-          Carrier Vetting Services: Utilize services like Carrier411, Highway, Carrier Assure and CarrierOk to track changes in carrier information, such as MCS-150 updates. Carrierok.com provides dates when phone numbers and email addresses have been changed. Make this MCS-150 date change check a part of your onboarding checklist.

-          Factoring Partners: Partner with the experts. Factors see fraud weekly, if not, daily. Find partners in the industry who are like minded and have a vested interest in protecting your company and your customer’s freight from scammers.

For Factors:

-          Too Good To Be True: Always question deals that seem too perfect, especially from carriers who have not needed factoring services for years but suddenly show interest.

-          Domain and IP Checks: Verify the age of email domains for the customers and check the IP addresses used for signing contracts to see if a VPN is being used. With today’s technologies, it’s easy to determine if the business owner is actually located in their respective state when they’re signing up.

-          Visual Confirmation: Ask for video calls and pictures of individuals holding their IDs to confirm identities. Many fraudsters will argue this isn’t possible or they can’t get on a Zoom call, which should be an immediate red flag. See our below example of what was submitted to us.

“Rules For Thee, But Not For Me” – Recommendations for the FMCSA

Recently, the FMCSA announced the formation of a task force to fight fraud. We appreciate the effort, but these scams have been going on for long enough. How many more millions or billions of dollars worth of freight need to be stolen for the government to act? We need action!

A simple solution we propose is stricter authority registration policies. We often receive applications from companies like "ABC Trucking LLC," supposedly domiciled in a specific state, only to find that no LLC or federal tax ID exists. Regulators require banks and financial institutions to confirm the legal business, owners, SSNs, and EINs before opening an account. Is our supply chain not as important or should it not be held to the same scrutiny? Governmental agencies like the IRS and VA have implemented ID.me for verification and two-factor authentication. Implementing similar protocols should be the first gatekeeper to keep bad actors at bay.

Conclusion: A Call to Vigilance

As we navigate these challenging times, we must remain vigilant in protecting our businesses. Just as Ronald Reagan famously said during the Cold War, “Trust but verify.” That approach remains critical. While the FMCSA has stepped up with a task force and new measures, we in the industry must do our part too.

Whether you are a factoring company, freight broker, or carrier, the importance of diligence cannot be overstated. By implementing robust verification processes and staying alert to the signs of fraud, we can protect our businesses and maintain the integrity of the transportation and logistics industry. Let’s remain vigilant, train our teams, and keep a healthy level of skepticism. Together, we can overcome the challenges posed by fraudsters.