(July 16, 2011) SANTA MONICA, Calif. — Online car buyers often find that using a cash escrow service is a smart and safe way to complete their transactions, but without proper diligence they could put themselves at risk of being scammed, reports Edmunds.com. 

How does a cash escrow scam work? 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 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 legit. Since March 2010, Edmunds 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.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."

Information on how to report scams to some of the most popular automotive classified listing sites can be found on Edmunds. Edmunds.com also advises buyers to protect against escrow scams by not letting the seller choose the escrow agent; instead, the buyer should insist on using an escrow agent of the buyer's choosing. Buyers can research escrow agents through the Better Business Bureau or online.

"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."