If I was to block the payment, I could be liable for fraud. Really?
Unlikely, can't see fraud here. Sounds like bluff. Don't panic.
Good they know you didn't sign a contract. If it was me I'd now be saying contract is not in effect, as previously advised the deposit is therefore not authorised and hereby cancelled.
Then I'd sit back and wait to see what happens. I wouldn't be buying another car just yet till this is closer to finalised.