Posted On: October 9, 2012 by Nancy Barron

Shell Corporations, Cayman Islands, and Consumer Fraud

Never heard of the company that is now sending you bills for your auto loan? You are not alone. It might be a debt buyer, or shell company shipping your payments to places like the Cayman Islands as a tax dodge or worse. Corporations that seek to remain anonymous have something to hide, and that something-to-hide is usually money. Unscrupulous companies use such shell games to avoid the transparency consumer protection laws seek to ensure. "Shell companies are a favorite tool of fraudsters," writes New York County District Attorney Cyrus R. Vance Jr. in a Reuters Op-Ed today.

That long document you signed in triplicate at the car dealer was probably a printed form retail installment sales contract, used to finance whatever part of the purchase price your down payment or trade-in did not cover. That contract was then assigned right away to a bank or other common lender. But after awhile, you might be getting bills from a company you don't even recognize. Sometimes the loan has been sold, or is being serviced by an anonymous affiliate. Sometimes, the financial institution has set up corporate shells that funnel the money to offshore accounts. Even large national dealer groups with household names are known to have held accounts in the Cayman Islands. Suddenly your loan and your good credit is in the hands of an entity you would never trust.

Consumers should look closely at their bills and if payment is being demanded from an entity other than the original assignee bank, there should be a clear explanation for the change. This is a good time to double-check the accounting on the invoice - is the new company charging the amount you agreed to pay, and is the balance being paid down as you do so? Of course, you should keep a complete file of every document relating to the loan and a record of all the payments made, when and to whom.

Meanwhile, Vance and many others urge Congress to regulate this shell game. The Incorporation Transparency and Law Enforcement Assistance Act, pending before the Senate Committee on Homeland Security and Governmental Affairs, is bipartisan legislation supported by a broad group of law enforcement agencies. It "would require states to collect information about the real people who own or control companies," he writes. That kind of regulation is long overdue. Corporate fraud is not just a crime, it has consequences for consumer justice as well.