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Tuesday, May 28, 2024

Brokers Fall For Carroting Schemes Too

LawBrokers Fall For Carroting Schemes Too

dangling carrotIt’s a scheme you might have heard of before. A broker dangles the promise of an impossibly good loan offer in front of a merchant with the condition that in order to get it, they first have to enter into a smaller contract with much less attractive terms. After that initial transaction is executed, the broker and the fake loan offer disappear, leaving the merchant to deal with the fallout.

Across the industry those that have seen it happen to their clients bemoan how anybody could fall for such an obvious scam. Yet all the while brokers repeatedly fall for the exact same scam and on a daily basis. Here’s how it works: Someone pretending to be a funder does cold outreach to a broker and through slick social engineering with false promises, convinces that broker to send deals to them. Best case scenario is the broker gets backdoored and worst case scenario, they’ve just sent off a merchant’s most sensitive documents to identity thieves. Yikes.

The first and best way to prevent being backdoored is to not send your deal to a scammer. Sounds obvious right? These tricksters will often point to worthless signs of authenticity, such as “look me up in the courts!” which literally has no basis for anything. Due to the proliferation of white labels, syndication, similar sounding names, and people having their hands in multiple entities, it is impossible for names of plaintiffs to mean anything unless their objective is to prove to you that they are so bad at funding that the only way to prove they exist is to show you that their customers refuse to pay them. Although I anticipate to take some heat for what I’m saying, brokers continue to fall for obvious frauds which causes them to get backdoored and which makes it harder for them to adequately educate merchants to not fall for the same scams.

Let’s look at a few other things to look out for:

“You may have seen us in bank statements!” – This also means nothing as anyone can make a debit say whatever they want. It doesn’t mean they’re legit. You don’t know that you’re actually talking to the company doing the debiting, you don’t know if it’s a white label or a third party service or a debt relief firm masquerading as a funder or a random scammer debiting merchant’s bank accounts. This is not proof of anything.

There’s no working website

This strangely got popular last year. Scammers register a domain name and create an email address that says something like “subs@…..” and just comment on social media posts to brokers saying they can totally do the deal. No working website, no contact info, no nothing, just subs@. If this sounds absurd, consider that brokers fall for it and send full files to random email addresses they see on the internet. Don’t fall for this. Please.

They won’t tell you their last name or where they’re located

No last name in their solicitation for that deal? That’s because they don’t want you to look them up. It’s easier for them to scam you if all you are left with is trying to track down somebody with no last name. If they won’t tell you the full name of the owner(s), that’s because it’s a scam. The most common defense they put up is, “c’mmmonnn it’s the funding biz, the owner doesn’t really want people to know.” Right, because it’s a scam.

Same goes for the office address. “c’mmmonnn It’s the funding biz, wink wink I got a P.O. Box or a virtual office, will that work?” One can understand the sensitivity of avoiding customers from showing up in person at what is essentially a back office but if the funder doesn’t want THE BROKER TO KNOW where they are, it’s because it’s a scam. Besides, in Florida, it’s illegal to not disclose your address to merchants.

They say they can fund any kind of deal in every state

Oh really? Is that so? Certain states require registration to be able to fund or lend at all. If you’re not asking to provide license or registration information to prove they can fund, you are failing to perform basic due diligence. I know this is boring because you just want to hurry up and see if they’ll fund a merchant but this is a common way to discover if they’re a liar straight out of the gate. If the funder or lender isn’t registered where they claim to be but you didn’t know because you didn’t ask, you will probably be backdoored. Ask them. And hopefully you understand what you’re even asking for? For instance, if you’re a broker you might need to be registered too. If they know that you’re not registered where you’re supposed to be, then you are setting yourself up for failure in that relationship because they know that you’re operating outside of lawful compliance. That could be an automatic breach of your ISO agreement and all your deals are now their property. Sorry.

You didn’t read your ISO agreement or you didn’t even have one

Ok this is a weird one, but sometimes brokers are so anxious to find out if a “funder” will do a file that they don’t even sign up with them. The recipient is therefore under no contractual obligation to do anything once the file is submitted even if there’s a phone call or email trail saying they’ll get paid. If an attorney didn’t review the ISO agreement with a fine-tooth comb on your behalf before submitting the deal, then you are setting yourself for heartbreak on whatever happens next. Be wary of “funders” acting extra buddy buddy with you, maybe even name-dropping people along the way, prodding you to send a deal without any formal paperwork in place. Classic backdoor situation.

They claim they’re a direct lender

If they are using language wholly inconsistent with the product they claim to offer, be very skeptical. If they say they can do every type of funding, they are a broker.

You have to ask if “anyone’s ever heard of them”

There are literally hundreds of funding and lending companies out there, with all their names and faces public, that are credentialed, registered, licensed, reviewed, critiqued, and willing to show themselves in person. There is no reason to send your deal to a random person on the internet that has nothing to support being legitimate. Obviously, startup funders may prove to be light on background information, but any broker entertaining one should be extremely skeptical. Guilty until proven innocent.

You want to stop the schemes? First, make sure you don’t fall for them yourself. Then you can help guide the merchants.

Last modified: May 7, 2024

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