Auto finance fraud exposure slips to $7.9B in 2023

Synthetic identity fraud contributed to an estimated $7.9 billion in fraud exposure across the auto finance industry in 2023, fueled by affordability concerns as fraudsters employed income misrepresentation, employment falsification and credit washing to conceal negative credit histories. Auto lenders' total estimated loss exposure due to fraud dipped nominally from $8.1 billion in 2022 due to a drop in auto loan origination volume, a ccording to risk management platform Point Predictive ’s 2024 auto lending fraud trends report, released May 9. Originations are estimated at $685 billion in 2023 compared with $751 billion in 2022, a ccording to Point Predictive. The rate of loan applications that contained elements of fraud increased by 6% year over year, according to the report. “People are out there really pushing their limits,” Point Predictive Chief Fraud Strategist Frank McKenna told Auto Finance News. "They're using these ulterior techniques to hide credit, to use new credit profiles, to get more money on their credit. . They've been pushed into these frauds because they don't have other ways to be able to get the vehicles legitimately.” Affordability prompts fraud wave Income and employment fraud accounted for $3.6 billion in fraud risk, or 45% of the industry’s total exposure, as vehicle affordability remains a challenge for consumers, according to the report. Point Predictive’s Affordability Risk Index, which delves into the connection between car prices, loan amounts and borrower factors like income and credit scores to assess industry-wide affordability , found that affordability risk peaked at 162% above the baseline in October 2023. Affordability slipped in 2023 because of limited inventory, escalating vehicle values , and inflation, which directly impacts fraud , according to the report. [caption id="attachment_58340966" align="alignnone" width="742"] Point Predictive [/caption] Synthetic Identity fraud, credit washing surge Instances of synthetic identity fraud, in which fraudsters pair legitimate personal information with falsified or stolen data such as a false Social Security number, rose 98 % in 2023, according to the report. Credit washing attempts — when credit repair companies help erase people's bad credit by filing false identity theft claims — rose 30% YoY to 0.65% of applications, according to the report. Synthetic identity fraud and credit washing accounted for a combined $2.3 billion in fraud risk, or 29% of industrywide exposure. , In 2023, income and employment misrepresentation, synthetic identity fraud and credit washing drove nearly 75% of auto lenders' fraud exposure, according to the report. As the tight economic environment continues into 2024, with i nflation remaining stubbornly high and the Federal Reserve signaling that rates might remain high for longer , income, employment and synthetic fraud will likely increase, McKenna said. “We've seen it time and time again, when you have a tighter environment , what happens is people tend to stretch the truth,” he said. “And when they stretch the truth, by budgeting their income because loans are less affordable, they have to kind of fudge their income to be able to afford the loan.” The Big Wheels Rankings are now available as a component of the relaunched Big Wheels Data Service, which includes an array of datasets on underwriting, volume, pricing , and capital. . The rankings tabulate the Top 100 auto lenders and lessors by originations and outstandings. . See BigWheelsData for details.

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Auto finance fraud exposure slips to $7.9B in 2023

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